Despite the latest GDP data showing signs of continuing recovery, current annual production of goods and services and potential production at the economy running at full steam shows a gap of around $800 billion. The economy is producing $800 billion less than what it would have under optimum conditions.
Combining sector-wise contributions to the US economy over the past two decades with US potential output estimates in the second quarter as per the Congressional Budget Office indicates that six out of 11 sectors are producing output as estimated with minor deficits or excesses. The other five sectors have a combined deficit of $845 billion. This is the extent of underperformance that is holding the economy back from a faster recovery.
Residential Investment or Housing accounts for $239 billion of missing output, which shows that the country is building fewer houses despite years after the burst of the housing bubble. This is adversely affecting the construction and home investment industry.
State & Local Government Spending shows a gap of $189 billion, which is indicative of the fact that the mindset of reducing costs and cutting down on the number of employees is still prevalent in the country.
Consumption of Durable Goods is lagging behind by $178 billion for probably the same reasons as the underperformance of the housing sector. A conservative approach of customers combined with continued debt issues from the previous boom is contributing to the sector’s reduced contribution.
Business Investment in Equipment, a sign of the level of confidence in corporate America, is underperforming by around $120 billion. This is a worrying indicator that companies don’t expect future demand to pickup anytime soon.
Federal Government Spending is down by around $118 billion and is probably the result of 2011 debt ceiling, the troops withdrawal in Iraq and Afghanistan, and other measures to reduce expenditures.
While the reduced contributions may be due to a long-term shift from historical precedents, the data indicates the problematic areas in the US economy, which represents a big risk as well a significant opportunity. Unless benchmark parameters have fundamentally changed, a revival in these sectors will be essential for a sustained high-paced recovery of the US economy.
Source: www.nytimes.com