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It's Not Getting Better: GDP Grows at a Sluggish 1.7 Percent Rate

Posted By William Beach On August 29, 2012 @ 12:06 pm In Featured | Comments Disabled

This morning’s update [1] from the Department of Commerce on economic activity in the second quarter shows that the economy grew at an anemic 1.7 percent annual rate. This follows a nearly equally weak first quarter growth rate of 2.0 percent.

How weak is this? In terms of economic output, the current recovery is the weakest of any [2] since 1945: Total output is only 6.8 percent higher than when the recession ended in 2009, which was about 12 quarters ago. Compare that to the other really big post-war recession: 1981. After 12 quarters, economic output stood 18.5 percent higher than the end of that recession. Even the really slow recovery from the 2001 recession outdoes the current one: By 12 quarters following the end of the 2001 recession, economic output was 8.9 percent higher.

The weak spots in the current recovery stand out in today’s economic growth report. The Bureau of Economic Analysis traces the sluggish growth rate to slowdowns in the spending of households and businesses and shrinking inventories.

While the media will highlight the weak household spending numbers, the real focus of concern should be on business investment. When businesses hold back on improving and growing their productive capacity, that inaction directly affects hiring decisions and, thus, household incomes. And that’s what businesses appear to be doing this year: They are sitting this economy out.

Very few economic actions testify more strongly to the failure of current economic policy—especially the threats of tax increases next year—than what businesses are doing. Well before voters head to the polling booth in November, American business has apparently voted against the near-term prospects of the economy. Imagine the economy today if better economic policy had been the norm over the past several years.

Ballooning national debt, ineffective fiscal and monetary policies, and a $500 billion tax increase in 2013 alone have combined to do exactly what one would expect: They have made the entrepreneurial spirit of American enterprise dive for cover in what should otherwise be the strongest recovery in decades.

Instead of morning in America, it’s the veritable swamp of despond.


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URL to article: http://blog.heritage.org/2012/08/29/its-not-getting-better-gdp-grows-at-a-sluggish-1-7-percent-rate/

URLs in this post:

[1] update: http://www.bea.gov/newsreleases/national/gdp/2012/pdf/gdp2q12_2nd.pdf

[2] weakest of any: http://www.minneapolisfed.org/publications_papers/studies/recession_perspective/

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