Contemplations on America and 4% GDP Growth, by Chris Hamilton

Sustained 4 percent GDP growth in the US isn’t going to happen. From Christ Hamilton at economica.blogspot.com:

Economic prognosticators (Jamie Dimon, among them) suggest that 4% GDP growth is likely and that economic good times have returned.  I haven’t a clue what they are smoking.  I’ll lay out how the US economy has grown ever more reliant on cheap debt to buy ever more intangible services creating a decelerating number of full time jobs among a population that is growing ever more slowly (the basis of a growing consumer base).  And that’s just scratching the surface.

To provide some context, the chart below shows the Federal Funds Rate (black shaded area) versus the annual change in federal debt (red), consumption (yellow), government consumption (blue), and private investment (white).  Noteworthy since the GFC is the surging annual change in consumption versus tame growth in government spending and decelerating private investment.  BTW, since ’81, a rising FFR % coupled with decelerating federal debt growth (as we now have) has resulted in declining private investment and imminent recession.

America the Service Economy:  Since 1960, consumption as a percentage of GDP has risen from 60% to nearly 70%, as of 2017.  However, the make up of the three components that comprise consumption has drastically changed (chart below).  Durable goods (those deemed to last 3+ years) has been steady at about 8% of GDP while non-durable goods has nearly fallen in half.  Conversely, services have risen from just more than a quarter of the total economy to nearly half of total GDP!  A service is a type of economic activity that is intangible, is not stored, and does not result in ownership.  A service is consumed at the point of sale.

So America is an economy where nearly half of all spending results in nothing tangible or durable to show for it…except more debt to be serviced?!?

To continue reading: Contemplations on America and 4% GDP Growth

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