In his quarterly report, The Economic Situation, economist Bruce Yandle wrote that the flattening of the U.S. gross domestic product may be something to get used to.
“It’s been 15 years since we saw 4.0% and nine years since 3.0%,” wrote Yandle, dean emeritus of Clemson University’s College of Business and Behavioral Science. “Somehow, the Great Recession seems to have ripped high gear from the economy’s transmission, and came with no warranty.”
Yandle said the nation’s manufacturing sector has seen a marked slowdown since 2014, with a more negative turn during the last half of 2015. He said manufacturing output, which accounts for 12% of total value added in the economy, has seen four straight months of negative growth. Energy production, which is 2% of the total value added, has also declined, Yandle said.
“The change of pace resulted from the stronger dollar, the slowing Chinese economy and general weakness in the world economy,” Yandle said. “We might say that the economy is experiencing a manufacturing recession now, and energy production is doing no better.”
Yandle cited a study (.pdf) by Wells Fargo Economics Group, in which economists noted manufacturing growth of 0.6% in the third quarter and 0.2% growth in each of the first two quarters of the year. The study concluded that “a 3% decline in manufacturing value added would be required to push services into negative growth territory,” according to Yandle.
“No, we don’t have negative numbers yet, but we are getting close to negative,” Yandle said.
He added that the country would not likely see 3% annual GDP soon, primarily because the work-age population shows a drop of 0.3% from 2015 to 2024, coupled with a drop of 0.8% from 2005 to 2014 in growth of real output per worker.
“We cannot know the overall outcome that will emerge from these different forces, but we can bet on the prospect of little in the way of sudden change in labor participation,” Yandle said.
He added that there may be hope in terms of increasing manufacturing productivity; but he said any big changes may not have an immediate impact in terms of strong productivity growth, because of time and “regulations that prevent adaptation and production expansions.”
“Those barriers are pretty stout, and they are not likely to yield much in the next five or so years,” Yandle said. “But that could change. Over the longer term, there are meaningful possibilities ... at least theoretically.”
Reach Matthew Clark at 864-235-5677, ext. 107, or @matthewclark76 on Twitter.