Ever since the Great Recession, the first quarter has brought with it dramatically lower economic activity in the US, resulting in significant downgrades to annual growth forecasts. This year was no different, and now we are seeing strong evidence that this year’s slump threatens to move beyond the winter months.
Many have characterized the US economy’s inability to grow robustly as an expected after-effect of a severe cyclical downturn. Such interpretation is well past its sell-by date. It’s time to recognize that globalization has brought with it issues that defy cyclical economic prescriptions. We need to move beyond wishing that this monumental shift can be resolved by conventional measures and form a consensus leading to more effective policy, CNBC reported.
In the first quarter, the GDP growth rate fell to +0.2 percent annualized, from an average of +2.4 percent during 2014. Even worse, deflation experienced during the first quarter of 2015 was responsible for half of the growth in GDP ? nominal growth was an even lower +0.1%. Trade data that emerged subsequently indicates that the first quarter growth rate will be revised downward into negative territory and that the second quarter will prove disappointing as well.
Job Growth Slows
In fact, the entire post-recession economic recovery in the US has been far less than stellar. Median household real incomes have not recovered and jobs created have been at lower wages than previously existing jobs. The pace of job growth has slowed significantly this year, with the percentage of the employable population actually working near a 35 year low; retail sales and industrial production are in a renewed decline; core inflation is well below historical averages and all targets set by policy makers; the strong dollar is now killing exports and ballooning the US trade deficit; and polarization of incomes and wealth has been increasing apace.
The good news is that we are finally seeing several prominent economists speaking forcefully on the subject. And we are at the beginning of a presidential election process in which the reticence of the present administration, when it comes to taking potent action on these issues, is being called into question.
As lackluster as recent US economic results have been, our competitors around the world are under even more economic pressure. Policy makers in the eurozone and Japan, as well as less-developed nations, have pursued measures that have had the effect of devaluing their currencies against the US dollar, hurting US exports and making their exports more competitive.
Former Treasury Secretary and White House economic advisor Larry Summers, in late 2013, advanced the argument that the unspectacular recovery from the Great Recession in the US is due to “secular stagnation,” which points to a shortfall in aggregate demand relative to supply, leading to a dearth of growth-producing investment behavior on the part of businesses, because of major changes to the underpinnings of the economy.
