Private Sector Growing Faster Than Before Bubble

OppenheimerFunds’ chief economist discusses the slow economic growth and the often overlooked growth in the private sector

Private-sector GDP has grown an annualized 3.2% since the recession. Private-sector GDP has grown an annualized 3.2% since the recession.

Discussions of the U.S. economy’s slow growth often focus on the perceived failures of government policy — overlooking the healthier growth in the private sector.

Not to mention the fact that private-sector growth has been higher since the financial crisis than in the so-called “bubble” before it.

“In the search to explain the unusually slow rebound from the Great Recession of 2007 to 2009, which I principally attribute to the lingering, though waning effects of the credit boom and bust, the media tend to focus on perceived failures of government policy,” writes OppenheimerFunds’ Chief Economist Jerry Webman in his recent blog post, Concerns About Slow Growth Overlook a Key Trend.

The government’s contribution to the economy’s slow growth can be seen by looking at the annual U.S. GDP.

“Annual U.S. GDP is currently estimated at $17.295 trillion. Of that huge sum, government spending at all levels totals $3.162 trillion or about 18.3%, which means that what happens in the private sector — households and businesses — is almost four and a half times as important in dollar terms as what the government does,” Webman writes.

He points to data from the Bureau of Economic Analysis that shows the private sector has been growing faster than it did during the bubble cycle of the past decade. During the bubble of the early ‘00s, the private-sector gross domestic product grew an annualized 2.9% on average, quarter by quarter. Post-recession, the average growth for the private sector GDP is an annualized 3.2%.

“I’ll repeat my favorite theme, ‘Hating the government isn’t an investment strategy,’" Webman writes. "It turns out that finding businesses that can thrive in the current environment is.”

From the third quarter of 2009 — when Webman says “the U.S. economy finally stopped shrinking” — through the middle of this year, household and business spending and investment increased by more than $1.8 trillion in inflation-adjusted dollars, or by about 16%.

In comparison, government spending at all levels shrank by 7.5% in the same period. To see this more fully, one can look at the July employment report, where government employment changed little month over month.

“All of the post-recession growth in the U.S. economy has come from the private sector,” writes Webman. “The decline in real government spending has been a drag and part of the explanation for subpar growth.”

Webman says there is a positive side to slow growth, which is the absence of the excesses and bottlenecks that typically precede recessions. He adds, “most of us would root for more jobs, more output, more growth sooner.”

“Whether you look at job creation, industrial production, business investment, home construction or consumer purchases — apart from our steady replacement of our aging auto fleet — the results pretty much remain lukewarm,” he writes.

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