The Latest GDP Data: Is the Economy Really “Roaring”

By SBE Council at 28 October, 2016, 11:04 am

by Raymond J. Keating-

The U.S. Bureau of Economic Analysis released its first estimate of third quarter GDP on October 28. It’s effectively the last look at the state of the overall economy before the November 8 presidential election.

You know you’re stuck in a bad economy, when third quarter real growth of 2.9 percent is the fastest experienced over the past two years. A headline in The Wall Street Journal went so far as to declare that “U.S. Economy Roars Back…” Roars? Really? Perhaps some perspective is in order.

Poor Growth

Make no mistake, 2.9 percent growth means that the U.S. economy is still badly under-performing. As explained is SBE Council’s Gap Analysis #1: The GDP Shortfall, “Real GDP growth has averaged 2.1 percent during this recovery/expansion…, which is far short of the 1956-2016 average of 3.1 percent, and less than half of the 4.3 percent real rate prevailing during periods of recovery and expansion.”

So, during an expansion/recovery period, the U.S. economy should be growing at better than 4 percent, but we saw growth of only 2.9 percent in the third quarter. And over the past two years, growth has averaged a woeful 1.9 percent. That’s simply pathetic.

As for the third quarter data, there were two big points worth highlighting.

Private Investment Troubles Continue

First, troubles on the private investment front continued. Real gross private domestic investment grew by a mediocre 3.1 percent, which was the first quarter of growth since the third quarter of last year. Unfortunately, though, much of this growth in investment was about inventories. Real fixed investment actually declined by 0.6 percent, with nonresidential (or business) investment inching up by 1.2 percent and residential investment falling by 6.2 percent. That was the second consecutive quarter of big declines in residential investment, showing that housing continues its long struggles.

Welcome Rebound in Exports

Second, the big plus in the data came on the exports front. After a year-and-a-half of poor export performance – with exports declining in four of the previous six quarters – real exports in the third quarter jumped by 10 percent. That was the strongest growth since the fourth quarter of 2013. Given the formidable shortfall of where the U.S. economy should be in terms of exports, as well as lost small business exporters, as explained in SHE Council’s new report “Gap Analysis #7: Lost Exports, Lost Small Businesses,” let’s hope this is the start of a long-run turnaround in exports.

Outlook

Since 2007, the U.S. economy has suffered through its longest under-performing economy since, arguably, the Great Depression. Real growth from the start of the last recession has averaged a mere 1.3 percent. Unfortunately, slow growth, or worse, will persist until we see a dramatic change in federal public policies, including tax relief and reform, regulatory relief and reform, leadership on advancing free trade, and reining in federal spending and debt.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP: The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.