Everyone knows jobs are growing, but not fast enough to seriously lower the unemployment rate, which stands at 9.1%.
Everyone also knows real GDP has expanded for nine consecutive quarters, at an average annual rate of 2.5%. No one is satisfied with this; but it is a recovery, not a recession.
So, how can real GDP grow when housing and employment are so weak? Something must be going right…somewhere.
Well, it turns out that the strongest part of the economy has been business investment. Equipment and software investment (Cap-Ex) has grown five times faster than GDP – 12.9% at an annual rate over the past nine quarters.
Yes, companies are making wise investments in the areas they have confidence – improving their operational capabilities – How? With investment in technology, networking, mobility, PCs, WiFi, and any other area that the government will not add regulation and taxation. This past GDP reports Equipment and software investment has grown FIVE TIMES FASTER than our GDP, at +17% last quarter.
Last we looked, the only help government is giving businesses is a more rapid depreciation schedule – which is a tax incentive for investment. Yet, trillions are being spent trying to stimulate housing and employment. In other words, the way government is trying to boost by spending is going wrong, but where it uses tax cuts things are looking up and going right. If government could find the courage to have faith in markets and not itself, more things would be going right.
Every dollar the government spends comes from either borrowing (from our future) or taken from the private sector (taxes). Government does not create economic activity – it takes from the economy. If the government were to shrink from its current 25% of GDP, the private sector would grow faster.
The bigger the government, the smaller the citizen.
Steve started his investment career in 1978 with the NYSE investment firm EF Hutton, working in the environment of a large investment company. Desiring to provide clients with objective investment advice, he founded Prosperion Financial Advisors. Learn more about Steve here.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
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