This Week's Forecasts & Trends E-Letter
Sub-3% GDP Growth: A Lost Decade For The US Economy
February 2, 2016
Whew – January is finally over! Up until the last week or so, the downside carnage in January was the worst New Year’s stock market start in history. Thanks to last week’s rebound, it was only the worst New Year’s start since January of 2009 when the Great Recession was unfolding. Still, it was a hair-raising month for stock investors. And no one knows if the damage is over.
There are many theories as to why equity markets around the world suddenly plummeted in January. I have written about several of them in the last couple of weeks. Most market commentators, including yours truly, have pointed to concerns about China’s economy, the collapse in oil/commodity prices, the strong US dollar, Fed interest rate hikes, etc., etc. as the likely causes for the January implosion.
Rather than continue that discussion today, I want to point out a milestone that was reached with the end of 2015 and last Friday’s 4Q GDP report – and this milestone was not a good one. With 2015 behind us, it has been a decade since we have seen 3% yearly growth in the economy. The last year we had 3% growth was 2005. Call it America’s “Lost Decade.”
Near the end of today’s letter, I will make some suggestions on how we could stimulate our now moribund economy – starting with a significant corporate income tax cut for businesses large and small. Republicans complain that they can’t override President Obama’s veto, so they do nothing. Yet with the economy now growing by less than 1%, I think the GOP would be surprised at how much support they could get from Democrats, especially in an election year.
Before we get to that discussion, let’s take a look at last Friday’s GDP report for the 4Q. The advance report came in lower than expected with growth of only 0.7% for the final three months of last year. The sharply lower 4Q reading suggests yet another year of weak economic growth. And there is now a controversy over how much the economy expanded last year, which I will explain as we go along.
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There’s a lot to cover in today’s E-Letter, so let’s get started.