{ "id": "R46200", "type": "CRS Report", "typeId": "REPORTS", "number": "R46200", "active": true, "source": "EveryCRSReport.com", "versions": [ { "source": "EveryCRSReport.com", "id": 615053, "date": "2020-01-28", "retrieved": "2020-01-29T14:04:56.782016", "title": "Recent Slower Economic Growth in the United States: Policy Implications", "summary": "The current economic expansion is the longest in recorded U.S. history, but it has not been characterized by rapid economic growth. From the beginning of the current economic expansion in the third quarter of 2009 to the second quarter of 2017, this expansion had the lowest economic growth rate of any expansion since World War II, averaging 2.2%. For the next five quarters, growth accelerated to 3.1%. However, growth has slowed since, averaging 2.1% over the next four quarters beginning in the fourth quarter of 2018. The slower growth rate has been widespread, but has been particularly concentrated in business investment and exports. Private forecasters expect this slower pace to continue in 2020. A similar growth pattern has not been observed in labor markets, as monthly employment growth was only slightly lower in the slower-growth period than in the faster-growth period. \nA number of developments have influenced growth since 2017:\nFiscal policy. The federal budget deficit rose from 3.5% of gross domestic product (GDP) in FY2017 to 3.9% in FY2018. Deficit-financed tax or spending policy changes stimulate overall economic activity in the short run, but stimulus fades over time. The deficit increased partly as a result of P.L. 115-97, which cut taxes beginning in calendar year 2018, with the budgetary effects peaking in FY2019. \nMonetary policy. The Federal Reserve raised short-term interest rates gradually from a range of 0.25%-0.5% in December 2016 to a range of 2.25%-2.5% in December 2018. Higher interest rates reduce interest-sensitive spending, such as business investment and consumer durables. Rates were then cut in 2019 to a range of 1.5%-1.75%.\nRegulatory policy. The Administration reported that agencies have undertaken 393 deregulatory actions and 52 significant regulatory actions since FY2017, at a net benefit totaling $50.9 billion, based on agency estimates. Deregulatory actions that reduced costs for businesses could boost their output levels.\nTrade policy. Since 2017, the Administration has proposed a series of escalating tariffs and other import restrictions on major trading partners, such as China. In response, affected countries have often proposed retaliatory trade restrictions on U.S. exports. Trade restrictions have a mixed direct effect on growth through their impact on U.S. exports and imports. However, they are generally thought to have a negative indirect effect on growth through their impact on real income, financial conditions, and business investment.\nStock market. Stock prices (as measured by the S&P 500 index) rose by 38% between November 4, 2016, and January 26, 2018, with little volatility by historical standards. Since then, volatility has risen. Favorable financial conditions make it easier for firms to finance investment and may lead asset holders to consume more through a wealth effect.\nGlobal growth. Global growth fell from 3.8% in 2017 to 3.6% in 2018 to a projected 3.0% in 2019. This reduces foreign demand for U.S. exports, all else equal.\nOver time, economists believe that the economy cannot grow faster than its trend or potential growth rate, which is determined by how quickly labor, the capital stock, and productivity grow. It appears that the growth rate has reverted to its trend growth rate since the fourth quarter of 20s18. Regulatory policy changes and fiscal stimulus may have contributed to the temporary increase in growth, but do not appear to have led to a permanent acceleration in trend growth.\nThis slower rate of growth would be problematic if growth continued to decelerate toward zero, but most forecasters do not expect this to happen. On the contrary, this slower rate of growth could make a recession less likely because it reduces the probability that the economy will overheat, which has been the cause of some past recessions. It is unusual for fiscal and monetary policy to remain stimulative when the economy has fully recovered from a recession. As a result, there is less remaining headroom than usual for the Federal Reserve to reduce interest rates (monetary stimulus) or Congress to increase the deficit (fiscal stimulus) going forward. Policymakers face a choice between maintaining existing fiscal and monetary stimulus to maintain growth and removing stimulus so that there is more scope to employ stimulus in the next recession.", "type": "CRS Report", "typeId": "REPORTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "https://www.crs.gov/Reports/R46200", "sha1": "5d0de4d38186ba2b2323047b84efea705035fddb", "filename": "files/20200128_R46200_5d0de4d38186ba2b2323047b84efea705035fddb.html", "images": { "/products/Getimages/?directory=R/html/R46200_files&id=/0.png": "files/20200128_R46200_images_92ff8c96f733bcc8ecfa1431fda37b0b51f137f3.png" } }, { "format": "PDF", "encoding": null, "url": "https://www.crs.gov/Reports/pdf/R46200", "sha1": "0ad33370bdb893ef732b410ba96b97cefb6eb8e3", "filename": "files/20200128_R46200_0ad33370bdb893ef732b410ba96b97cefb6eb8e3.pdf", "images": {} } ], "topics": [] } ], "topics": [ "Economic Policy" ] }