Part 1: Cheat Sheet Q&A: Is a 3% growth economy still possible?:

Part 1: Cheat Sheet Q&A: Is a 3% growth economy still possible?:

Today's entry: Hi Brian, I have a question I hope you can answer. Ever since President Trump stated that his goal for economic growth was over 3% I've heard a bunch of so called experts come out and say it isn't possible any longer. I remember you saying that it hasn't happened in over ten years so is it still possible and are these experts really just critics of Trump?

Bottom Line: I can't necessarily speak to the motivations of the those who've made this suggestion though. Candidly, I've been somewhat surprised to hear a person or two that I have enormous respect for suggest that it isn't possible (like the legendary Jack Bogle - Founder of Vanguard). But to cut right to the chase... Yes - it's possible. It's just math. As you eluded to the last year that the US economy grew at a 3% or better rate was 2005. As I've recently demonstrated, the average historic growth rate of the US economy is 3.2%. So in other words we haven't had even an average year of economic growth in nearly over 11 years. But just because it's the average doesn't make it possible going forward. It's true that the larger an economy is, the harder it is to sustain a higher growth rate going forward. But this is just math after all... I'm using round/approximate numbers for what drives the US economy:

  • Consumer spending: 70%
  • Business spending: 20%
  • Government spending: 10%

Now there are a myriad of subsets  under those generalizations but you get the point that the consumer is clearly the most important ingredient to the US economic growth rate. The first headwind to improving the US consumer growth rate is the population growth rate. The historic average US population growth rate through the year 2000 was 1.2%. Aside an aside there's only one year in recorded American history with a negative population growth rate (1918 - WWI effect).Since 2001, we've not had even one year with a growth rate of 1%. As of February 1st of this year the year over year population growth rate was .69%. So the decrease in population growth is two-fold. First it's one of the basic economic arguments for increasing legal immigration into the US. The macro trend has been that as women have become equal players in the work force family sizes have been falling. That's unlikely to reverse based on all current trend lines. It also means that what used to mean that the economy would grow at 1.2% per year but default (all other factors being equitable) that's been cut in half...But now for the most important factor of all. Labor participation and income growth.

 
Brian Mudd

Brian Mudd

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