The U.S. economy seems to be steadying at this point following some signs of weakness earlier in 2019. But, to describe the economic performance as robust is an exaggeration, yet that is what I continue to read in a number of financial journals. Since when is growth that hovers around 2% ever considered robust? In Fact, we are experiencing an unprecedented era for U.S. growth rates and it isn’t something to be celebrating. Yes, our economy suffered through the Great Financial Crisis (GFC) only 10+ years ago, but we’ve gone through other significant downturns since 1929 (The Great Depression) and we’ve never had such a sustained period in which U. S. GDP growth has failed to exceed 3.0% for a calendar year.
The last time the U.S. GDP Growth Rate exceeded 3% was in 2005. We have now failed to achieve that level for 13 consecutive years, and 2019 doesn’t provide much hope that we will get there once again. Prior to this period, the longest annual drought without a 3%+ annual GDP growth rate was four consecutive years from 1930-1933. That four-year slide was followed by an eleven-year period in which the U.S. economy only witnessed one year of negative growth and an 11-year average growth rate of 10.2%. There have been four other 3-year periods in which the U.S. has failed to achieve a 3% or greater annual growth rate since 1934, including periods ending 1947, 1958, 1982, and 2003. But, nothing comes close to what this current period would have prepared us for.
What makes this period even more unusual is the fact that the U.S. government deficit continues to climb well into the recovery, and now hovers around $1 trillion. Can you imagine where our growth rate would be today if we hadn’t had that abundant stimulus? Roughly 2/3s of GDP growth is driven by the consumer and that ratio hasn’t changed much over the years. What has happened is the fact that demand for goods and services is being hampered by weak real wage growth and declining labor participation. We’ve reported in prior blogs that wealth and income creation is found in a much smaller subset of our population and that is also impacting demand and economic activity.
What concerns me greatly is the impact that a weakening retirement system will have on future demand. The demise of the defined benefit system and the reliance on DC plans will create a strong headwind for future growth as Americans retire with much smaller income replacement rates. There are currently about 1.3 million Americans in critical and declining multiemployer plans that might see a significant reduction in the promised benefits that they were expecting to receive. We are kidding ourselves if we think that this is the only cohort that might see their previous economic participation negatively impacted by benefit reductions. Despite tax cuts and “historically” low unemployment, this economic expansion has been anemic. What will it take for our country to once again witness actual “robust” economic growth?