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With the Commerce Department having issued last week its second read on U.S. economic growth in the third quarter of this year, RealityChek can update its ongoing examination of a major but sorely neglected economic issue: Is the quality of America’s growth improving or worsening? That is, has the nation managed to generate more output in ways that will make a repeat of the last decade’s financial crisis and ensuing Great Recession likelier? Or is it still relying excessively on the same unsustainable growth engines that made the crisis inevitable?

Happily, the news here is pretty good. Not earthshaking, to be sure. But the new statistics confirm that, so far during 2017, the nation has made gradual (though by no means adequate) progress toward former President Obama’s essential goal of creating “an economy built to last,” rather than one dependent on spending and housing bubbles.

As suggested by that last sentence, RealityChek measures the health of growth by looking at the share of the inflation-adjusted gross domestic product (GDP) made up of consumer spending and housing – the toxic combination whose bloat let to the previous decade’s near meltdown.

These two sectors’ combined share of the after-inflation economy peaked in the third quarter of 2005, at 73.27 percent. Last week’s GDP statistics pegged it at 72.85 percent – the lowest since the 72.70 percent in the third quarter of 2016.

In the fourth quarter of 2016, this figure rose to 72.94 percent, and increased again to 73.14 percent in the first quarter of this year. But since then, it’s dipped for two straight quarters – the first such sequence since the first half of 2014.

The big change hasn’t come from personal consumption. In fact, it’s share of real GDP hit its all-time high in the second quarter of this year: 69.60 percent. And the latest third quarter figure is a still elevated 69.43 percent. What’s happened has been a dramatic shriveling of the housing sector. It peaked as a share of real GDP in the second quarter of 2005 at 6.17 percent. The new GDP report pegs it at just 3.42 percent

Business investment – another pillar of solid, healthy growth – may have picked up in the third quarter, too. The quarter’s first estimate of GDP judged that such spending accounted for 16.33 percent of its 2.96 percent annualized constant dollar growth. That would have continued a string of declining relative importance that began in the second quarter. But the newest data revises the business investment contribution upward to 18.10 percent of a (higher) 3.26 percent annualized price-adjusted growth rate.

This hardly a sterling performance. And it hasn’t lasted very long. But these results are considerably better than those for 2016 (when business spending actually subtracted 5.33 percent from the year’s 1.49 percent real growth) or for 2015 (when such investment’s role was positive, but it fueled only 10.34 percent of that year’s 2.86 percent real growth).

In addition, they could set the stage for an interesting test of the Republican party’s fundamental tax reform strategy: Use tax cuts to put more money into the pockets of businesses and wealthier Americans to encourage the building of more factories and labs and other kinds of productive facilities at home. If the Republican approach survives Congress intact, the GDP numbers will be a big help in seeing whether its promise of producing better and healthier growth is kept.

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