Home Logon FTA Investment Managers Blog Subscribe About Us Contact Us

Search by Ticker, Keyword or CUSIP       
 
 

Blog Home
   Brian Wesbury
Chief Economist
 
Bio
X •  LinkedIn
   Bob Stein
Deputy Chief Economist
Bio
X •  LinkedIn
 
  Even Garth Can’t Argue About Liftoff
Posted Under: Employment • GDP • Government • Monday Morning Outlook • Spending
Plow On, Garth! Time for Liftoff, Wayne! The first report on Q2 real GDP showed Plow Horse annualized growth of 2.3%, exactly the same as the average growth rate in the past year. Now that's the definition of a Plow Horse report.

We can think of two major reasons why the economy has been growing at such a tepid pace the past several years, one "bad," one "good."

The bad reason is growth in the size of government. Contrary to popular academic belief, government spending and redistribution often have a negative multiplier on growth. And spending has been on the rise since President Clinton's last two years. President Bush continued this trend, and then President Obama oversaw the creation of a broad health care entitlement.

Worse, government spending related to Obamacare can't be fully measured because it forces redistribution through the "private" health insurance system. So, instead of taxing healthy people and giving money to sick people, the government now regulates the insurance market to achieve the same goal without directly touching the money. So it's a form of government spending even if it's not on the government's income statement.

The effect of this expansion is to fatten up the jockey who sits on top of the entrepreneurial horse. With a normal size jockey, our horse could win the Kentucky Derby every year, but with an obese jockey, the U.S. economy is just a Plow Horse.

The good reason for slow economic growth is that government statisticians are having a hard time measuring true output. Productivity and GDP growth are not as slow as the official numbers say. For example, when people download free apps to improve their communication and travel, that isn't measured in GDP, yet our standard of living is clearly higher.

One thing we are confident about is that quantitative easing (QE) hasn't made a dime's worth of difference. Although it stuffed the banking system chock full of idle excess reserves, new figures from the government show weaker economic growth in 2012-13, while the Fed was engaged in expansive QE3, and then slightly faster growth in 2014, when the Fed was tapering and then ending QE.

When we put all this together, the picture is reasonably clear. The economy has been in recovery for six years and the unemployment rate has finally fallen to a level even the Fed thinks is close to full employment. Unemployment claims have been below 300,000 for twenty-one straight weeks, and at less than 0.2% of total jobs are at historical lows.

So, even though growth remains slow, it's hard to argue rates should stay at zero. While some investors fear rate hikes, we see them as ratifying the strides the economy has made in the past several years. Surely, this is no economic boom like 1980s or 1990s. But even a modestly growing economy should have short-term rates higher than zero.

Brian S. Wesbury - Chief Economist
Robert Stein, CFA – Deputy Chief Economist


Click here for PDF version
Posted on Monday, August 3, 2015 @ 9:53 AM • Post Link Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
Search Posts
 PREVIOUS POSTS
M2 and C&I Loan Growth
The First Estimate for Q2 Real GDP growth is 2.3% at an Annual Rate
September Hike Still on the Table
China Crash: Whaddaboutit!
New Orders for Durable Goods Rose 3.4% in June
GDP Rebounds in Q2
M2 and C&I Loan Growth
New Single-Family Home Sales Declined 6.8% in June
Existing Home Sales Increased 3.2% in June
Tax Cuts on the Horizon
Archive
Skip Navigation Links.
Expand 20242024
Expand 20232023
Expand 20222022
Expand 20212021
Expand 20202020
Expand 20192019
Expand 20182018
Expand 20172017
Expand 20162016
Expand 20152015
Expand 20142014
Expand 20132013
Expand 20122012
Expand 20112011
Expand 20102010

Search by Topic
Skip Navigation Links.

 
The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
Follow First Trust:  
First Trust Portfolios L.P.  Member SIPC and FINRA. (Form CRS)   •  First Trust Advisors L.P. (Form CRS)
Home |  Important Legal Information |  Privacy Policy |  California Privacy Policy |  Business Continuity Plan |  FINRA BrokerCheck
Copyright © 2024 All rights reserved.