Disappointment over US GDP announcement overblown

Disappointment over US GDP announcement overblown

Disappointment over US GDP announcement overblown US GDP figures announced last week spelled gloom for some analysts, but a commentary piece published on the First Trust Portfolios Canada website says that they’re blowing the GDP report “way out of proportion”.

“Yes, the economy grew at only a 1.2% annual rate in the second quarter, falling short of a consensus expected 2.6%. And yes, the growth rate in the first quarter was revised down to only 0.8%,” the commentary concedes. “But an economy with a growth trend right around 2% is bound to have periods that are slower offset by periods that are stronger.”

Pointing out an increased size of government over the past two presidents, the piece explains that plow horse economic growth averaging 2.1% per year since the country’s recovery from recession is to be expected.

“Increases in the size of government, including more government spending, more regulation, and the hidden control of private resources through health insurance rules, have sapped the economy’s ability to generate higher standards of living as fast as in previous decades,” the piece explains.

It also notes that while business investment has dropped over the past three quarters, that statistic includes slumps in commercial construction, such as brick-and-mortar retail stores that are falling out of favor. Other sectors of fixed investment, on the other hand, are up 19% in spite of lower energy prices.

The commentary also questions the assumption that productivity comes from investment, pointing out that corporate profits have increased 47% since 2008 despite decreased investment.

“Traditionally, investors have thought of productivity growth as something that comes from more investment. A worker with a better machine produces more. But in today’s economy, productivity looks like it’s increasingly coming from how efficiently we use the labor and capital we already have in place,” it reads.

So while the perception among many is that the US economy isn’t doing well, it all comes down to seeing things in the proper context. “The Plow Horse economy has plenty to complain about. But let’s stick to fixing government policy, not distorting data to try to make the economy look even worse than it is.”

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