Saturday, July 30, 2016

Continuing Decline In Business Investment Is Causing Slow Growth In Productivity, Wages And Jobs

From The Wall Street Journal, Opinion, "Make America Grow Again: The economy is stuck on 1% growth as business investment stalls:"
The [2016] second quarter suffered in particular from the same malaise that has marked nearly the entire Obama era—poor business investment. Consumer spending rose smartly at 4.2% in the second quarter, but business investment fell at a 2.2% pace, and companies ran down inventories for the fifth consecutive quarter.

Quarterly Business Investment Contribution To GDP
Source: The Wall Street Journal

The nearby chart shows the quarterly contribution to GDP from private “nonresidential fixed investment” since 2013. Business spending on the likes of new factories, equipment and software has subtracted from growth for three straight quarters. Apart from a stretch in 2014, the last three years have been historically weak.

This matters because business investment spurs the growth and productivity gains that produce more jobs and higher wages. As resilient as consumers have been, they can’t drive growth by themselves.


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