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Thursday, July 31, 2008

SBE Council Chief Economist on GDP Numbers

Today, Raymond J. Keating, chief economist for the Small Business & Entrepreneurship Council (SBE Council), issued the following statement regarding the GDP numbers released today:

"The best thing that can be said about the second quarter GDP numbers is: It could have been worse. The 1.9 percent real GDP growth rate shows that economic growth remains very sluggish, and the Commerce Department's revisions of earlier quarters revealed that growth recently was slower than originally thought, including negative growth in the fourth quarter of last year. But it can be said that we have not officially entered a recession - at least, not yet.

"While most economy watchers are focused on the consumer, it must be kept in mind that the consumer follows business and investment. Real gross private domestic investment came in at a sad -14.8 percent in the second quarter - the third straight quarter of negative growth, and the seventh negative percentage out of the last nine quarters. Of course, residential investment remains the major drag given the ongoing housing depression. But equipment and software investment also was down for two straight quarters.

"From a policy perspective, a strange proposal has been floated by both Senator Barack Obama and various Democrats in Congress that is claimed would ‘stimulate' the economy. That is, having the federal government doling out more taxpayer dollars to state and local governments. From an economics standpoint, this is a bewildering proposal. Handouts from one set of politicians to another set of politicians, who will then turn around and spend most of that money in a politically-driven, perhaps wasteful, fashion will not help the economy. In fact, it could do more damage. In contrast, the best policy options to boost the economy are lower governmental barriers to private sector production. That means providing substantive, permanent tax and regulatory relief that will boost incentives for working, investing and entrepreneurship."

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