U.S. GDP Can't Break the 3 Percent Growth Mark

As has been the case for the last ten years or so, the U.S. economy continues to grow at a rate that has failed to meet expectations. The recently released numbers from the Commerce Department show GDP growth is at only 2.3 percent, significantly below the expected 3 percent being looked for.

It has been a full decade since the last time the GDP has grown above a 3 percent rate, making it the weakest recovery in about 70 years. Economic growth hasn't surpassed the 3 percent mark since 2005, according to the Commerce Department.

Another key factor is the continual drop in productivity, which according to the Labor Department, reached a high in 2002. Being a number of years before the Great Recession, it can't be considered the primary source of the drop in hourly output.

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Will China's Silk Road Become a Ghost Train?

Even though the official numbers from China's National Bureau of Statistics suggest consumption is moving steadily along, accounting for 51.2 percent of GDP, and following on the heels of the 12 percent boost in retail sales in 2014, there are questions these numbers may not reflect the reality on the ground.

It has been pointed out that "private surveys and results from consumer product companies" paint a different picture; one that draws the conclusion that consumer spending has been level or contracting.

Other data contributing to this as being the likely scenario are the PPI in April dropped for the 37th month in a row, and manufacturing in China, with a 49.2 reading in May (-4.6%, missing analysts expectations of -4.4%), confirms it is contracting faster than believed.

The point is the decisions and proposed spending actions and focus of Chinese economic leadership reinforces the strong probability China is struggling to not only grow its economy, but to keep it from contracting.

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Broken Window, Taxes and U.S. Economy

I've known about the relationship between federal tax receipt percentages measured against the GDP in the United States, so it was instructive for me to read on McClellan Financial Publications, an article talking about the fact taxes in the U.S. are "returning to Economy-Killing" levels.

Here's the main thesis of the article:

"Whenever total federal tax receipts have exceeded 18% of GDP, the result has always been a recession for the U.S. economy."

It goes on to state that "sometimes we can see that effect from a total federal take at less than 18%." The latter (below 18%) aren't as consistent as when the federal tax receipts are over 18%, but it's still a definite possibility that a recession is just around the corner.

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