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By John Ubaldi
Contributor, In Homeland Security
With so much attention focused on North Korea’s nuclear weapons program, there’s been little attention in the press to the April 28 Commerce Department report. It showed that the U.S. economy grew a minuscule 0.7%, its slowest pace since 2014.
Both political parties continue to squabble over partisan issues. But the real issue on the minds of voters is the economy. It’s the singular issue that propelled Donald Trump into the White House.
Some economists blame the slowdown on transitory forces, including the unusually warm winter weather and the volatility of inventories. There also was a slowdown in auto sales and consumer spending.
Companies and Consumers Remain Optimistic about Economic Rebound
Nevertheless, that volatility “supports forecasts for a rebound as high confidence among companies and consumers and a solid job market underpin growth,” Bloomberg Markets reported.
Consumer spending, the largest component of the economy, rose just 0.3%, according to the report, released by Commerce’s Bureau of Economic Analysis. That is the worst rate since 2009. There was a pickup in investment, led by housing and oil drilling.
“There’s no cause for concern,” Ryan Sweet, an economist with Moody’s Analytics, told Bloomberg.
Business investment is “encouraging,” he said. Consumers “had a little bit of a hangover, and they’ll bounce back in [the] second quarter. The key will be wage gains. We need strong wage-growth support for spending going forward.”
This is not what Middle America wants to hear. Too many Americans are experiencing stagnant wages and increasing costs, especially for healthcare.
With last Friday’s dismal GDP numbers, the U.S. economy hasn’t seen annual growth top 3% since 2005. The economic situation looks bleak for the future.
Analysts are concerned about the Commerce Department’s seasonal adjustment of growth data. “Since 2000,” Bloomberg reported, “expansion in the first quarter of each year has averaged 1%, compared to 2.2% for the rest of each year, according to Wells Fargo Securities.”
Most analysts are predicting on average only 2.2% to 2.3% growth through 2019. That growth is slightly higher than the recovery from the recession of 2008-09. But that was only 2.1% growth, which was the weakest recovery since the Great Depression.
This follows what the Congressional Budget Office (CBO) reported in January 2017. The CBO said without any changes in current economic policy, the GDP will expand at an average annual pace of 2.1%, followed by a long period of about 1.8% annual growth rate.
The same report concluded that without any significant changes, the federal deficit will reach $559 billion by 2023. The federal government will again be running trillion-dollar deficits.
As far back as August 2010, former Chairman of the Joint Chiefs of Staff Admiral Mike Mullen said the national debt and the economy were the greatest threat facing the United States. Mullin’s statement was true then and it remains true now.
A Threat to National Security
“The most significant threat to our national security is our debt,” Mullin told CNN. “And the reason I say that is because the ability for our country to resource our military – and I have a pretty good feeling and understanding about what our national security requirements are – is going to be directly proportional over time — not next year or the year after, but over time — to help our economy.”
“That’s why it’s so important that the economy move in the right direction, because the strength and the support and the resources that our military uses are directly related to the health of our economy over time,” Mullin said.
If nothing is done, our national debt will skyrocket an additional $10 trillion in a decade, becoming a greater drain on the economy.
As expected, the Trump administration reacted negatively to this pessimistic analysis.
Commerce Secretary Wilbur Ross on Friday said, “We need the President’s tax plan, regulatory relief, trade renegotiations and the unleashing of [the] American energy sector to overcome the dismal economy inherited by the Trump Administration. Business and consumer sentiment is strong, but both must be released from the regulatory and tax shackles constraining economic growth.”
Right now, the U.S. is definitely at a crossroads on how to revive the economy. There are two schools of thought regarding how to accomplish this so-called revival.
One school of thought, favored by Democrats, believes we need more government intervention and higher taxes on the wealthy. The other school of thought, favored by Republicans, wants a reduction in taxes, less regulation and a smaller government.
With Trump in the White House, we will see if lower taxes, less regulation, smaller government and more free market actually work. If Trump fails to revive the U.S. economy, I shudder to think what the alternative will be.
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