Looking for a Stronger Economy?
Once upon a time annual 3% GDP growth in this country was a given. Not anymore. We are looking at consistent growth at the lower end of 2% for the foreseeable future, and we should stop crying in our beer about it.
That was the powerfully argued message at this year’s Economic Summit from Michael Gregory, deputy chief economist and head of U.S. economics for BMO Capital Markets, a division of BMO Harris Bank, the global financial powerhouse. “We expected a lot of pro-business policies from this new administration,” Gregory told the Summit audience, “and there has been some easing in regulations, but for the most part the reality has been not so much.”
Business, from one end of the economy to the other, and certainly up and down the industrial metals supply chain, has been urging Congress and the president to kick start the economy with a substantial infrastructure spending program and comprehensive tax reform. Neither of those is on the immediate horizon, Gregory said, because of our large and increasing national budget deficit.
“We have concluded that we are not going to get much stimulus from Washington, which would require a level of cooperation that we are not seeing,” Gregory said.
“But the good news is we do not need it,” he said. “Business and consumer confidence is still pretty high and the economy is building without it.”
Hurricanes Harvey and Irma will at the same time pose a drag on the economy and a temporary boost. “The hurricanes could affect maybe 10% of the economy, but the slowdown will be offset by the need for all that rebuilding and replacement.
Gregory noted that we are seeing solid consumer spending, and increases in housing starts, business investment and net exports. “Next year we will produce the most oil ever in the U.S., and even the global economy looks okay, with Russia and Brazil stronger and China more stable. Canada, our biggest trading partner grew more than 4% last year.”
Yes, Gregory said, if the administration provokes trade wars with Canada, Mexico, China, the European Union or all of the above, the economy could shrink destructively. But though the president is fond of rattling that sword, the reality of an increasingly global economy makes a bet against trade stupidity a good one. “NAFTA needs tweaking,” Gregory said, “but not torn up.”
So why is that 3% GDP annual growth rate proving so elusive? After all, it was common and expected until the last recession. Gregory says our low productivity and its many aspects are the reason and a problem that will not be resolved soon. “We have low unemployment already and too many of those out of work do not have the right skills for the right jobs, he said. “The population is aging, and too many of those looking for jobs say they don’t want to move. You don't get growth in those circumstances.” Sensible immigration policies, and national daycare would help boost growth, he said.
“Nevertheless, that 2% will continue and that means that next year will mark the longest continued expansion in our history,” he said.