Julex Capital Management
  • Email
  • Facebook
  • Linkedin
  • Twitter
Connect with us.
  • Home
  • Insights
    • Investment Commentaries
    • Thought Leadership
  • Products
    • Product Summary
    • Fact Sheets
    • Performance
    • How to Invest
    • Disclosure
  • Investment Process
    • Investment Philosophy
    • Adaptive Investment Approach
  • About Us
    • Our Story
    • Our Competitive Edge
    • Management Team
    • Research Team
    • Advisory Board
    • Julex In the News
  • Contact
Search the site...

Three Charts Explaining Why Economic Growth Is So Slow

Download the article in PDF.

Since the Great Recession in 2008, the economic recovery has been particularly slow, especially when compared to the historical norm. Between 1947 and 2016, the average growth rate during economic expansion periods was 4.19%, but during the current expansion between 2009 and 2016, the GDP growth was merely 2.12%, half of the long term average (see Table 1).

Normally, we would expect a V-shape recovery after a deep recession, but this recovery is more like a L-shape. Many economists attributed the slow growth to structural reasons such as aging population or slow productivity growth, but we believe cyclical and policy factors may have more impacts here.

Table 1: The Growth Rates of GDP and Its Components (Q2, 1947-Q4, 2016)

gdp-growth

Table 1 shows the comparison of the average growth rates of GDP and its components between the most recent expansion and all the expansion periods after WWII. Consumption, investments and government spending all underperformed the historical averages. Moreover, the government spending had a negative contribution to the GDP growth.  We may be able to explain the slow growth of each component and total GDP with the following three charts.

1. High household leverage hampered consumption as households had to save more in order to reduce debt burden. Figure 1 shows that after reaching its highest level of 95.5%, the household debt-to-GDP ratio declined to 78.8% as saving rates increased.

Figure 1: House Debt-to-GDP Ratio and Personal Savings Rate

house-debt-to-gdp-ratio
Source: TradingEconomics.com

2. The efforts and austerity measures to balance federal budgets worked against economic growth. Figure 2 shows budget deficits as a percentage of GDP reached the highest post-WWII level (-9.8%) after the Great Recession.  The US government, especially the Congress rushed to cut spending and balance the budgets. Those efforts may be necessary, but they slowed the economic recovery.

Figure 2: Federal Budget Deficit as a Percentage of GDP

federal-surplus
Source: Federal Reserve Bank St. Louis

3. Excess capacity dis-incentivized business from increasing investment spending. Figure 3 shows the current total industry capacity utilization rate of 75.5% was well below the pre-crisis level.

Figure 3: Total Industry Capacity Utilization Rate

capacity-utilization

How can we get out of the low-growth “new normal”? Fiscal policies such as infrastructure spending and tax cuts can definitely help. After eight years of fiscal conservatism, the government balance sheet is in a better shape. The US budget deficits have improved from 9.8% of GDP to 3.2%. It is a better time for us to use fiscal measures to stimulate the economy, especially after we have exhausted other tools like monetary policies.

News and Commentary

  • Risk Managed TrueAlpha ESG US Equity

    April 17, 2018
  • Are US and China Heading Toward a Full-Blown Trade War?

    March 27, 2018
  • Will Wage Growth Drive Up Inflation?

    March 21, 2018
  • Julex Capital Recognized as Top Guns Manager by Informa Investment Solutions for Q4 2017

    February 26, 2018
  • What Happened to Stocks When the Fed Was Tightening

    February 21, 2018
  • Implications of GOP Tax Bill for Equity Sectors

    January 16, 2018
  • 3 Worst Bear Markets Started with High PE

    November 20, 2017
  • Julex Capital Recognized as Top Guns Manager by Informa Investment Solutions for Q3 2017

    November 16, 2017

    News and Commentary

    • Risk Managed TrueAlpha ESG US Equity

      April 17, 2018
    • Are US and China Heading Toward a Full-Blown Trade War?

      March 27, 2018
    • Will Wage Growth Drive Up Inflation?

      March 21, 2018
    • Julex Capital Recognized as Top Guns Manager by Informa Investment Solutions for Q4 2017

      February 26, 2018

      Thought Leadership

      Julex provides forward-looking and thought-provoking perspectives on managed ETF and asset allocation strategies as well as the investment management industry. We encourage feedback from our colleagues and clients so we can work together to overcome the challenges facing the industry and find innovative solutions to serve the best interest of our clients. Please visit our Thought Leadership Library .

      Receive Our Research via Email

      Please sign up today!

      (c) 2017 Julex Capital Management, LLC
      • Home
      • Product Summary
      • Solutions
      • Performance
      • Investment Philosophy
      • Form ADV
      • Julex In the News
      • Blog
      • Contact
      • Disclosure