What’s holding the US economy back?
The last time unemployment topped 10 percent, in 1982, what followed was a dramatic recovery. Economic growth was around 7-7.5 percent. This was substantially above the 4 percent that is expected for the US this year.
What is likely holding the economy back from a vigorous rebound is a failure of business investment. Businesses hold record levels of cash and the economy is growing. But there’s a lot of uncertainty out there.
Tax policy, energy policy, health-care policy, and regulatory policy are all in limbo. And there seems to be a new round of business-bashing every day, from Facebook’s privacy policies to the Goldman Sachs–vampire squid comparison. Generations ago the struggle was between management and labor. Now it seems to be between business and the policy wonks.
If the business climate stabilized you would see significant spending on expanding markets, products, and production. The world is still globalizing, as evidenced by recovering global trade and continuing growth in the developing world. Those new consumers—billions of them—will want cars, shampoo, and insurance. There’s no reason why world-class firms flush with cash should hold back when the world is calling.
Business has the means and the opportunity to accelerate the economy. What it lacks is motive. We need to help it recover this.
Douglas R. Tengdin, CFA
Chief Investment Officer
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