Part 2: Cheat Sheet Q&A: Is a 3% growth economy still possible?:

posted by Brian Mudd - 

Part 2: Cheat Sheet Q&A: Is a 3% growth economy still possible?:

Bottom Line: In 2005, when the US economy last had a 3%+ growth economy the labor participation rate averaged 66%. Today it's at 62.9%. That difference of 3.1% is huge when we're talking about obtaining 3%+ economic growth. While those who aren't in the labor force are still spending some money, you certainty can't expect them to be increasing their spending meaningfully after dropping out of the work force. That creates a natural drag on consumer spending. The biggest factor of all though comes down to real median incomes. In 2005 the median household income was $46,242 - Today it's $56,224 While that might sound OK on the surface here's the issue. If incomes had grown at 3.2% per year (the historic average) - that $46,242 income in 2005 would be $65,750 today. That's more than $10,500 less earnings power today due to the weak income growth of the previous 11 years. So here's the bottom line...

Population growth is a slight headwind but if we were to improve the labor participation rate by 3%+ to reach the typical rate and if real incomes were to grow by 3%+, you'd have more than enough firepower to achieve 3%+. As for business and Government spending... You can rest assured that if consumers were earning/spending that much more businesses and Governments would be following suite.

So it's not just possible - it should be an expectation.If you have a topic or question you'd like me to address email me: brianmudd@iheartmedia.com

Brian Mudd

Brian Mudd

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