Everyone knows that economic growth is good for job creation, rising standards of living, higher stock prices and much more What’s not to like?
That’s why Donald Trump promised a huge jump in GDP growth to four percent or more. In his Las Vegas debate, he said, “I actually think we can go higher than 4%. I think you can go to 5% or 6%.” Unfortunately simply saying it doesn’t make it so.
In no year this century has GDP growth reached four percent. Not a one, and that is in stark contrast to the post-war record. In every decade since WWII there were at least four and sometimes as many as six years in which growth matched or exceeded four percent due equally to the expansion of the workforce and productivity gains.
Because Baby Boomers are retiring (95 million people are out of the workforce), and immigrants won’t make a big difference, future growth will have to come primarily from productivity gains. Hello robots, ATMs, the internet of things, etc. A recent analysis said that inside of 20 years half of today’s jobs could be eliminated through automation.
New technologies, the internet, the cloud and the age of specialization favor growth. Uber is revolutionizing public transportation.
Online retailers (Amazon) are undercutting brick-and-mortar stores, some of which are folding. Many politicians do not understand the sweeping changes underway. Some fondly remember the 1980s when tax cuts propelled the economy at an annual rate greater than four percent.
But a nostalgic look at years gone by serves no purpose now because the economy and demographics then were very unlike today’s. In fact, by distracting people from a focus on the new world, nostalgia is counter-productive.
Today, there are reasons to be upbeat about economic growth and small business owners clearly are. The index of their sentiment post-election rose the most since 1980. Even a few years of three percent growth would be very good news for the economy, earnings and the stock market.
A combination of corporate and individual tax cuts, regulatory relief and additional spending with a more business-friendly and pro-growth government will boost GDP growth above last decade’s two-percent ceiling toward three.
Don’t expect much headway this year. It takes time to pass and enact legislation and more time for businesses and individuals to respond and invest. It could be a long time before we see another four-percent year.
David Vomund is an Incline Village-based fee-only money manager. Information is found at www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.
