Many professional economists keep talking down the prospects for U.S. growth, but today’s numbers suggest they’re wrong.
The common refrain goes something like this: “Tax cuts will only give a temporary boost.” “Any growth this year will take away from next year.” “This expansion is stimulus-driven.”
However there could be an alternate narrative, with America rapidly investing in itself. What if the numbers tell a very different tale of a domestic economy laying the groundwork for productivity-led growth?
Check out the Commerce Department’s revision of second-quarter Gross Domestic Product today:
- The top line was strong, revised up to +4.2 percent while the professionals had expected a revision down to +4 percent.
- Interestingly, all the positives were found at the business level. The growth in fixed investment was revised up from the +5.4 percent originally reported in July to +6.2 percent.
- Construction of non-residential buildings — factories, warehouses, offices — grew 8.5 percent, more than a full percentage point above the earlier estimate.
- Spending on capital equipment like machinery was boosted by half a percentage point.
- Corporate profits rise 7.7 percent on a yearly basis. Bloomberg says that was the sharpest increase in four years.
- Guess what the real kicker was? “Intellectual property products” was revised from +8.2 percent to +11 percent. Even in the government’s GDP report, you cannot get away from Tech.
- Looking at it from another angle, software’s contribution to overall GDP doubled from 0.1 percentage point to 0.2 percentage point. That helps explain the kind of moves we’ve seen names like Workday (WDAY) and Autodesk (ADSK). Salesforce.com (CRM), by the way, reports tonight.
Beyond those strong business numbers, the consumer side was weak. Personal consumption was revised down from +4 percent to +3.8 percent. Housing took an even bigger hit, from -1.1 percent to -1.6 percent.
Put these two trends together — strong business spending and weak consumer spending — and an entirely new picture emerges of the U.S. economy. In fact it’s the polar opposite of last decade.
The one last thing to consider is employment. The simple unemployment rate remains near long-term lows under 4 percent. But the employment/population ratio, which shows the number of people with jobs as a percentage of overall population, paints a very different picture.
Using this metric, 79.5 percent of Americans between the ages of 25 and 54 were employed in July. That’s pretty much the same level from a decade ago and remains below the 81.5 percent peak from 1999. There’s an even bigger difference for the overall country (all age groups): 60.5 percent now versus 64.7 percent in 2000.
In other words, there could still be room for more Americans to enter the workforce.
What to make of rising investment and employment? They suggest the very opposite thing all these economists have been saying about the limited potential for growth. Instead of this expansion being a short-term “sugar high,” what if it is actually the start of a new growth phase? And what if this time around we can pull it off without toxic debt and a reliance on cheap imports?
Bottom line: This isn’t a trade recommendation and everyone needs to do their own homework. But the more one learns about this economy, the harder it gets to be negative.