GDP growth of 3 percent is still within our grasp
President Trump’s tax cuts and deregulation are delivering as promised. Over the last year, GDP is up 3 percent.
Left-leaning analysts in the media warn that can’t last. They argue consumer demand will soon slack off, investment spending is disappointing, and businesses won’t be able to find workers needed to keep expanding.
Americans have been spending their tax cuts prudently and have lots of firepower in reserve. As a share of the household income, credit card debt is well below the levels reached prior to the financial crisis.
Expected surges in new home and auto sales are not materializing, because millennials (24-38 years old) and their younger siblings often prefer living in cities.
They are not enamored with colonials, big lawns and long commutes, and place greater emphasis on urban amenities and unique experiences — restaurants and delivered meals, rock concerts and vacations, higher-end groceries and wine, smartphones and personal assistants, and the like.
That’s why your local Whole Foods is so crowded. Apple and Samsung have been able to add new features to cell phones and boost prices. Netflix’s sales keep rising and many of the big technology companies are rushing into movie and TV production.
Administration economists expected tax cuts along with deregulation to boost investment spending, but we are not seeing huge increases in the dollar value of new buildings, machines and software purchased by businesses.
Instead, digital technologies are enabling business to use those assets much more efficiently, and they are hiring more and increasing investments in employee training to boost worker productivity.
Over the year ending in September, the economy added 204,000 jobs a month and that jumped to 250,000 in October, even as businesses continued to lament shortages of skilled workers. In particular, those related to the digital transformation of just about everything from farms to factories to e-commerce fulfillment centers.
This payroll jump was possible with unemployment sinking to 3.7 percent, because the share of the prime working-age adults either working or looking for work fell during the low-wage Obama years and now is rising again. That can provide 200,000 additional workers a month into 2020 when adult participation would reach pre-financial crisis levels.
Over the past year, private sector wages were up 3.1 percent — well ahead of inflation. And when businesses were recently asked where they were putting their corporate tax cut savings, 49 percent said increasing capital investment and 34 percent increasing employee training, whereas only 32 percent and 17 percent said increasing shareholders dividends and stock buybacks.
Businesses are automating and applying artificial intelligence throughout the economy — from ticket kiosks at movie theaters to Uber replacing dispatch centers at taxi services. They aren’t laying off many workers but instead increasing what they produce at an accelerated pace with a rising headcount.
Businesses are placing particular emphasis on training up less skilled workers for more sophisticated roles. Blue Apron is sending line workers to a 10-month coding academy — this radical retraining program enables former line workers to become web designers and in some cases triple their incomes.
Along the same lines, President Trump has greatly expanded the Labor Department’s certified private-sector apprenticeship program and obtained corporate pledges to create 6 million training opportunities. The former are not just in traditional building trades but also in technology, manufacturing and business services. Many pay about $15 an hour during training and average starting salaries of $60,000 for 87 percent of those who successfully complete these programs.
All these efforts become apparent in surging productivity. This year, output per worker has been increasing about at a 2.5 percent annual pace, and that’s very much in line with the pre-Obama era and the robust recoveries engineered by Presidents Reagan and Clinton.
We will need that kind of productivity growth to keep up 3 percent growth, because the adult population is only growing at about 0.5 percent a year. Once all the adults sidelined by the Obama malaise are coaxed back into the labor force that growth can only provide about 65,000 new hires each month.
With the revolution in robotics and artificial intelligence, and new corporate and federal commitments to worker training, 2.5 percent annual productivity growth, rising wages and an economy expanding 3 percent a year are clearly within our grasp. Peter Morici is an economist and business professor at the University Maryland, national columnist.