Molasses?

Why is the economy growing so slowly?

Source: St. Louis Fed

Since the Great Recession, the economy has never gotten back into high gear. We’ve always seemed to be teetering on the edge of another downturn. Quarterly economic growth has averaged 2%, while a normal recovery is usually above 3.5%. Why?

First, the workforce is changing. We are now entering the period where baby-boomers are beginning to retire. Like most things the boomers have gotten involved with, they are transforming retirement. Their family finances may be stretched by having debt from putting kids through college, or because one in four have adult children living with them. Also, the changing nature of health care is changing everyone’s work patterns.

Second, there are some special factors that have made this recovery more difficult. Because the boom was in housing—creating oversupply—lower interest rates have not been able to stimulate the homebuilding sector very much. The Euro crisis and China’s economic restructuring have put a serious dent in demand for US exports. Long-term financial challenges in the States have reduced government hiring.

GDP Composition. Source: FRB Richmond

Finally, there are some long-term trends in productivity that began about 10 years ago. Growth in technology has been centered around software—an informational product—which doesn’t get consumed when someone uses it. My web-search doesn’t prevent you from searching the web. There’s also evidence that much of our newest economic activity isn’t being measured. For example, more pictures are being taken than ever before. But the GDP contribution from photography has actually plummeted over the last decade, as many people use smart-phones to take, upload, and share photos. This is a way that the measured economy is depressed by new technology.

There’s no magic here. Our slow-growth economy hasn’t developed because rates are too low or the Chinese are stealing our jobs or unicorns in Silicon Valley are too greedy. If we want to get the economy moving again, we need to encourage what creates economic growth in the first place: innovation, ingenuity, and productive people.

Douglas R. Tengdin, CFA

Chief Investment Officer

By | 2017-07-17T12:21:40+00:00 October 18th, 2016|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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