SBE Council Chief Economist Comments on Second Quarter GDP Growth

Today, Raymond J. Keating, chief economist for the Small Business & Entrepreneurship Council (SBE Council), issued the following statement about the second quarter GDP numbers released by the U.S. Bureau of Economic Analysis:

“Real GDP growth of 1.5% in the second quarter, following on 2% in the first quarter, is simply abysmal.  In fact, this entire recovery has been one of the worst on record. Real GDP growth over the past three years has averaged 2.2 percent, when we should be growing at double that rate during a recovery.

“One of the great dangers of continually poor GDP numbers for four-and-a-half years now is falling into the trap of diminished expectations. Make no mistake, the U.S. should not accept poor economic growth as some kind of new normal. Instead, serious pro-growth policy changes, such as tax and regulatory relief and stability, reining in government spending, and leading on trade, would put the U.S. back on a path of robust entrepreneurship, investment, growth and job creation.”

On Those First Quarter GDP Numbers

It’s hard to be an entrepreneur and at the same time be a pessimist. Entrepreneurship really requires optimism. Of course, that optimism must be rooted in reality.

 

It’s been tough, therefore, to be an entrepreneur in recent years, not to mention an economist for a small business group. After all, you long to be optimist on the economy, but policymaking has made robust optimism simply not realistic.

 

We were reminded of this unfortunate fact when the U.S. Bureau of Economic Analysis released its initial estimates on first quarter GDP last week. After one of the worst recessions in the post-World War II era ended in mid-2009, the subsequent recovery has been grossly under-performing.

 

During periods of economic recovery/growth, based on data over the past six-plus decades, we should be experiencing real growth averaging at least in the 4.0 percent to 4.5 percent range.

 

Real GDP growth in the first quarter came in at a mere 2.2 percent. And during this recovery, growth has averaged only 2.4 percent, without growth in even one quarter touching 4 percent.

 

Quite simply, it continues to be one of the worst economic recoveries on record.

 

But, again, given the egregiously anti-growth tax, regulatory and spending policies; largely nonexistent U.S. trade policy; and misguided monetary policy that have dominated for more than four years now, no one should be surprised by this dismal economic record.

 

Particularly troubling in the first quarter GDP data was the fact that private nonresidential investment was so poor, with investment in structures falling by 12 percent, and software and equipment only inching forward by 1.7 percent. That’s troublesome now and for the future.

 

Looking ahead, if such policymaking persists, no one should be surprised if the U.S. meanders along in a Europe-like sluggishness.

 

Of course, things do not have to be that way. Our nation can return to economic greatness and leadership if we choose to unleash the creative power of entrepreneurs, investors and businesses by getting government out of the way, that is, by permanently and deeply reducing tax rates, deregulating, reining in the size of government, advancing free trade, and refocusing monetary policy on price stability.

 

That would be cause for entrepreneurial optimism rooted in policy reality.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is “Chuck” vs. the Business World: Business Tips on TV.  

SBE Council Chief Economist First Quarter GDP Growth

Today, Raymond J. Keating, chief economist for the Small Business & Entrepreneurship Council (SBE Council), issued the following statement about the first quarter GDP numbers released by the U.S. Bureau of Economic Analysis:

 

“During periods of economic recovery/growth, based on data over the past six-plus decades, we should be experiencing real growth averaging at least in the 4.0 percent to 4.5 percent range. However, real GDP growth in the first quarter came in at a mere 2.2 percent. And during this recovery, growth has averaged only 2.4 percent, failing to reach 4 percent in even one quarter.

 

“Quite simply, one of the worst economic recoveries on record continued to grossly under-perform in the first quarter. Some people actually seem surprised by this. Why? After all, given egregiously anti-growth tax, regulatory and spending policies; largely nonexistent U.S. trade policy; and misguided monetary policy that have dominated for more than four years now, no one should be surprised by this dismal economic record. Indeed, if such policymaking persists, no one should be surprised if the U.S. meanders along in a Europe-like sluggishness for the foreseeable future.”

SBE Council Chief Economist Puts Third Quarter GDP in Perspective

Today, Raymond J. Keating, chief economist for the Small Business & Entrepreneurship Council (SBE Council), issued the following statement about the third quarter GDP numbers released by the U.S. Bureau of Economic Analysis:

"If you thought the economy had come to a standstill in the third quarter, then you might view the 2.5 percent third quarter real GDP growth rate as a positive. But if you understand where economic growth should be, this is just another quarter's worth of data confirming how poor this economic recovery continues to be.

"Let's put this in perspective. Since 1950, real GDP growth has averaged 3.3 percent. But over the past decade, growth has been very poor. Consider that real GDP growth from 1950 through 2000 averaged 3.7 percent, but real growth averaged a mere 1.6 percent from the first quarter of 2001 through the third quarter of 2011. That's less than half the rate of recent decades. And during this so-called recovery, which started in mid-2009, real GDP growth has averaged 2.5 percent. Keep in mind that during recovery periods, real growth should be registering in the 4.0 percent to 4.5 percent range.

"The U.S. is not destined to become like slow-growth Europe, with little job creation. But in order to get things back on track, we need a sharp change in policy direction. More regulation, higher taxes, and bigger government need to be replaced with regulatory relief and reform, substantive and permanent tax relief, and smaller government."

SBE Council Says Grim GDP Numbers Will Continue Without Pro-Growth Policies

SBE Council expressed little surprise regarding the results of second quarter GDP data released today by the U.S. Bureau of Economic Analysis (BEA). The dismal performance of the economy is a reflection of the low confidence and ballooning uncertainty among small business owners. SBE Council's recent "Entrepreneurs and the Economy" survey reflected the dour mood among small business owners -- they remained stressed about their firms' financial condition, and expressed widespread dissatisfaction with the direction of federal economic policies. Higher business costs - including gas prices - have been eating into their bottom lines and stunting growth.

The BEA reported a real GDP growth rate of 1.3 percent in the second quarter, and announced a downward revision in growth during the first quarter of 2011 and the fourth quarter of 2010.

"Despite all the great speeches about making the U.S. the best country in the world to do business and helping entrepreneur's access capital and create jobs, there have been no substantive policy initiatives from the White House to back up the rhetoric. The trend continues in the direction of more regulation and the threat of higher taxes. Instead of boosting business confidence, Washington continues to instill worry. This is what you get when you heap regulatory costs on business and threaten the economy with tax increases. Unless pro-growth policies are pursued, the grim numbers will continue," said SBE Council President & CEO Karen Kerrigan.

Raymond J. Keating, chief economist for SBE Council added: "Why is anyone surprised by the pathetic real GDP growth rate? This so-called economic recovery continues to grossly under-perform. Since the recovery began, we have not had one quarter that has even come close to matching where real GDP growth should be, and has averaged since 1950, during recovery/growth periods"

Keating said that none of the data is surprising given the direction of government policymaking for over three-and-a-half years now. What the U.S. needs, according to Keating, is tax reform and regulatory relief, more global trade opportunities, and sound money. He said we are getting the opposite.

"As for how federal debt and the debt ceiling debate fit in, that's more a signal or a symptom. The underlying trouble lies with out-of-control federal spending, and poor economic growth translating into lower government revenues. Given that the debt ceiling debate has moved beyond tax increases, and focused on some degree of spending restraint is a tiny positive. But policymaking in the U.S. will have to move in a dramatically different direction if we are to see a solid return to robust economic and employment growth."

SBE Council Chief Economist on Fourth Quarter GDP and Looking Ahead

Raymond J. Keating, chief economist for the Small Business & Entrepreneurship Council (SBE Council), issued the following statement about the fourth quarter GDP numbers released by the U.S. Bureau of Economic Analysis:

"There was some good news in today's GDP report, with fourth quarter real GDP growth topping 3 percent (3.2 percent), and private GDP growth hitting 3.3 percent. Most of this was about growth in personal consumption.

"Other areas were mixed. Growth in fixed private investment was hardly strong, while equipment and software investment has decelerated for two straight quarters now. On trade, exports grew at a respectable rate, but a big decline in imports raises questions about the state of the domestic economy.

"Looking to 2011, one potential growth plus is a shift from a negative policy environment to a neutral policy climate, with perhaps a slight tilt to the positive depending on how Obama actually reacts to some initiatives pushed by Congress. Tax reform and certainty, a robust trade push and a curtailment in regulatory activity would be big plusses. Replenishing inventories also should give GDP a temporary boost. But various negatives persist, including continued questions and costs related to the phase in of the new health care and financial overhaul laws; Fed monetary policy that is far too loose; regulatory activism at the Environmental Protection Agency; and the fact that the tax measures extended last month remain temporary, due to expire at the end of 2012."

SBE Council Chief Economist on Third Quarter GDP and Policy

Today, Raymond J. Keating, chief economist for the Small Business & Entrepreneurship Council (SBE Council), issued the following statement about the third quarter GDP numbers released by the U.S. Bureau of Economic Analysis:

"The grossly under-performing economic recovery persists. A mere 2% real GDP growth in the third quarter, which came after a poor 1.7% in the second quarter, falls far short of where growth should be during a recovery. It's also important to note that the growth in private sector investment slowed in the second quarter compared to the first, and much of the advancement in the third quarter was replenishing inventories.

"Most worrisome is how slowly private real GDP is advancing. Factor out government's contribution, and real private-sector GDP grew at only 1.3% in the third quarter and 0.9% in the second quarter.

"Clearly, wrongheaded governmental policies focused on more spending and debt, higher taxes and increased regulation continue to hinder private-sector entrepreneurship, business, investment and growth. Until those policies are reversed, a slow, under-performing recovery promises to persist."

SBE Council Chief Economist on Revised Numbers on Economy

Raymond J. Keating, chief economist for the Small Business & Entrepreneurship Council (SBE Council), issued the following statement on the revised GDP numbers:

"While the latest revision GDP numbers did not alter the overall point that growth has slowed markedly over the past two quarters, a couple of points are worth highlighting.

"First, it must be noted that government accounted for nearly half the 1.7% real growth rate in the second quarter. The private sector barely inched ahead by 0.9%. If things got any worse in the third quarter, which comes to an end today, we could be looking at a de facto private-sector recession.

"Second, the growth in corporate profits slowed dramatically in the second quarter. In addition, proprietors' income growth remains quite sluggish. That's trouble for investment and job creation.

"In the end, the economy and returns on business continue to suffer. A public policy focused on increased taxes, expanded regulation, and more spending, which is what we have right now, explicitly works against a robust recovery in business and the overall economy."