01.02.2015 1

Growth still only 2.7 percent year over year

SlowingGrowthBy Robert Romano

While the headline 5 percent real growth annualized in the third quarter has garnered much of the attention from the Bureau of Economic Analysis’ latest report published last week, it may be premature to proclaim that a robust economic expansion is upon us.

When the 2.1 percent contraction in the first quarter is taken into account, the economy has only grown at a tepid 2.7 percent rate in the past 12 months.

And while that’s better than the past few years, it’s not better by much. Real growth in 2010 was 2.5 percent. In 2011 it was 1.6 percent, in 2012 it was 2.3 percent, and in 2013 it was 2.2 percent.

In fact, you have to go back to 2005 just to find a year where the economy grew faster than 3 percent. That year, it grew at 3.3 percent.

And you have to go all the way back to 2000 the last time the U.S. economy grew at a rate higher than 4 percent. That year, it grew at 4.1 percent.

Yes, the financial crisis was really, really bad. And since World War II, the current period has been by far the weakest recovery on record, in terms of growth, job creation, housing prices, and everything else.

But the fact is nominal growth has been slowing down since the 1980s. As have inflation, interest rates, credit creation, and job growth. Labor participation among 25 to 54 year olds is down.

Those are not good trends. That’s a 13-going-on-14 year losing streak, and points to an overall weakening of the economy.

Which everyone should worry about, since job creation and income growth appear to depend almost entirely on robust economic growth — particularly in the private sector.

Certainly, everyone should hope that the burst of the past two quarters continues, but take it with a grain of salt. One must also consider the continued cooling of China and the recession in Japan and Europe.

Plus, we’re not seeing recovery in the areas that need it the most. As former Federal Reserve Chairman Alan Greenspan recently told Bloomberg Television: “Almost all of the weakness in the last four, five, six years has been in long-lived investments [in capital goods and real estate]. Until these pick up, we’re not going to get the kind of vibrant growth that everyone is hoping for.”

Greenspan is right. On real estate, existing home sales are down this year compared to all of 2013 about 3.6 percent so far, according to data published the National Association of Realtors. And here’s what we know: Home sales declines can be found preceding the 1991 recession, the 2001 recession, and the 2009 recession.

Finally, the fact the economy moves in cycles, averaging a recession once every 6 to 7 years since 1947. Since the last recession was five years ago, we’re basically due for another one any time now.

But that might not be for another year or so. Nobody knows. As it is, Greenspan and other economists are not expecting the third quarter upward trend to continue, and instead are forecasting less than 3 percent growth in the fourth quarter.

Which puts the economy right back it’s been not just for the past six years, but the past many decades, on a slowly declining trajectory. Hardly the Happy New Year news we are all hoping for.

Robert Romano is the senior editor of Americans for Limited Government.

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