US Economy Showing Signs of Stagnation

Readers will recall that we believe the US economy is on the up and up and will see substantial growth going forward, given the proper regulatory environment. We still believe that the US economy will only continue to improve, however that is not without a few hiccups along the way.

Last week we received several reports, many of which began to show signs that economic growth is slowing. Bloomberg reported that the Chicago Purchasing Managers Index (PMI) fell below 50 for the first time since 2009, showing that activity is slowing. In the Consumer Confidence report, 37.1% of individuals polled said they felt jobs were hard to find, the worst reading since November 2012. While Motor Vehicle sales continue to come in strong, the numbers are staying relatively flat as opposed to growing (15.3 million annual rate in March vs. 15.4 million annual rate in February).  The ADP employment report also showed signs of weakness in the jobs market.

This economic slowdown we feel can be attributed to regulations and costs of employment. Our stance on regulations in business are fairly well known through our writings; we believe in sound regulation and effective regulation, but not ineffective rules that allow policy makers and regulators to play “gotcha” with business owners. Unfortunately, we live in a highly regulated world, but many businesses have fought back as much as they can.

We have written several times about corporations hoarding cash until they feel comfortable expanding operations and hiring new employees; even large corporations would try to run as efficiently as they could with a smaller workforce, and that they would at some point reach full capacity. Given current conditions, we believe that the US economy may be operating at full capacity. This is not to say that things are bad, however things could always be better, Washington politicking is playing a big part in holding back economic growth.

One thing that businesses like is certainty; certainty on what employees are going to cost them, certainty on what their future costs of operations are going to be, future tax burdens, etc. I can honestly say with the strongest of convictions that the Legislative and Executive branches of our federal government have abjectly failed in doing their parts to encourage business and economic growth. I do not intend that as a partisan statement; actions taken (or not taken) by Republicans in the House of Representatives have been as damaging to the economy as actions taken (or not taken) by Democrats in the Senate or the Obama Administration.

At this point in time, our policy makers are so focused on social issues and foreign policy that they have neglected the domestic economic problems stifling the US economy altogether. Business leaders want clarity, but unfortunately they are only seeing inaction from Congress and the White House, or they are seen red…red tape that is.

At some point, optimism will begin to increase amongst business owners and that cash will be deployed on property, plant, equipment, employees, etc. At this point, the ball is in the hands of our elected officials. They know what needs to be done, and if for some unexplainable reason they cannot see the solution to the problem that they have created, they need to start talking to business leaders. It is maddening to see politicians scream and shout that the economy hasn’t fully recovered, yet they do nothing but write more rules to constrain growth. If we want to get the country back to work and get GDP growth back 7-10%/year, businesses need to have a reason to spend their money, and right now they have not been given a reason or an incentive to do so.

Ben Treece is a partner with Treece Investment Advisory Corp (www.TreeceInvestments.com) and licensed with FINRA (www.Finra.org) through Treece Financial Services Corp. The above information is the opinion of Ben Treece and should not be construed as investment advice or used without outside verification.
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