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Economic Growth Remains Too Slow Because of Policy Uncertainty

Posted By Curtis Dubay On July 31, 2013 @ 2:35 pm In Obamacare | Comments Disabled

Today’s report on gross domestic product (GDP) shows that not much changed in the economy during the second quarter. The Bureau of Economic Analysis’s initial estimate shows that economic growth was just 1.7 percent [1] from April 1 through June 30—well below the rate the economy should be growing [2] this far into a recovery from a recession.

Although growth came in higher than many expected, the economy continues growing at a slow rate that is too low to translate into the robust job growth needed to significantly lower the unemployment rate below 7.6 percent. Sluggish growth has become the new normal.

Consumption was the biggest contributor to growth in the second quarter. Investment, both by businesses and in housing, exhibited strong gains. The increase in investment bodes well for future growth and shows that the housing market continues to recover. Inventories also increased sharply, which could mean either that businesses anticipate stronger sales in the near future or that they overestimated demand in the current quarter. Time will tell.

This is the first full quarter that sequestration was in full effect. Despite the protestations of some in Washington that it would bring economic ruin, it had little effect outside its harmful impact on national defense. The small and mechanical negative economic impact it did have will disappear in future reports as the private sector spends or invests the money the government didn’t take out of the economy to spend.

As the economy stumbles along at sub-par growth, President Obama continues his economic speaking tour touting previously failed policies that won’t work to ramp up growth. Yet one of the biggest anchors holding the economy back is uncertainty among businesses caused by the President’s own policies: Obamacare, the Dodd–Frank financial law, environmental regulations, and lack of government action to head off a debt crisis that runaway entitlement spending will cause in the near future.

Until Washington alleviates the uncertainty caused by these policies, growth will remain below where it should be. Sub-par growth caused by policy uncertainty will continue to prevent an improvement in the labor market [3], which we should have seen by now.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2013/07/31/economic-growth-remains-too-slow-because-of-policy-uncertainty/

URLs in this post:

[1] economic growth was just 1.7 percent: http://bea.gov/newsreleases/national/gdp/2013/pdf/gdp2q13_adv.pdf

[2] well below the rate the economy should be growing: http://blog.heritage.org/2013/07/24/analysis-obamas-economic-speech-another-summer-rerun/

[3] policy uncertainty will continue to prevent an improvement in the labor market: http://www.frbsf.org/economic-research/publications/economic-letter/2013/july/us-labor-market-uncertainty-slow-recovery/

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