By David Rogers. January 24, 2017. BLOWING ROCK, NC — Although the current economic expansion in the U.S. will be eight years old in June 2017 and at 93 months will be the third longest in U.S. history, it’s nothing to brag about, Dr. Harry Davis, North Carolina Banking Association Professor of Banking and noted economist at Appalachian State University told an economic summit crowd Tuesday morning at Appalachian Ski Mountain. The “Economic Forecast Breakfast” was produced jointly by the Boone and Blowing Rock Chambers of Commerce.
Other economic expansions have been marked by concurrent strong growth in productivity, Davis said, but the 2009 to 2017 period of expansion has seen only a feeble increase in productivity, including some quarters where productivity “growth” has been negative. “Productivity was negative for three consecutive quarters through the second quarter of last year. The last time that happend in the United States was 1979.
“Productivity is awful in this expansion,” reported Davis. “It is at the lowest level in 60 years…Business investment actually declined for three consecutive quarters. Businesses are not investing in plant and equipment and businesses are not investing in people…You have to have capital in order to get productivity growth.”
Another major culprit, offered, is the number of Baby Boomers retiring out of the workforce. “There is a new study suggesting that retirement lowers productivity due to lost experience. About 10,000 people a day are retiring, and this will continue for about another 10 years. As those people retire, the labor force participation rate (declines). You get slow economic growth in that kind of environment.”
Looking out at this group and the ages of the people in this room…it’s over for most of you!
Davis pointed out that the people retiring have a great deal of knowledge and experience — and when they retire they take it with them.
“They are replaced by young people, who have energy, but very little knowledge and experience,” the longtime Appalachian State professor noted. “That leads to a decrease in output per man hour, which is the way we measure productivity in the United States.
“The study suggested that experience and knowledge for most people maxes out at about the age of 50,” Davis said, “and then goes sideways, and then at some point out there you retire. Looking out at this group and the ages of people in this room, it’s over for most of you!”
To increase productivity, Davis proposed that the U.S. needs to raise the retirement age and use various tax incentives to keep people — and their knowledge and experience — in the labor force longer.
Putting a spotlight on the feeble rate of growth in productivity during one of the longest economic expansions in U.S. history is just one of the tidbits of insight Davis offered during his half-hour presentation. Others included:
- Real personal income and consumer spending rates are beginning to reflect growth, to almost 3% in the last 12 months
- Cars and light truck sales hit a record high of 18.4 million in 2016
- Wage growth is accelerating and with it consumer confidence is at its highest level in over 15 years
- The value of the U.S. Dollar remains relatively high, which hurts the manufacturing sector
- Income growth in North Carolina has exceeded the national average for the past four years
- Corporate earnings declined for several quarters until the latest quarter
- With interest rates low, corporations have borrowed money to buy back stock and pay dividends — which greatly increases the wealth of the wealthy
- New residential construction improved dramtically since 2007, but is still at historic recession levels
- Because new construction remains at recession levels, existing home prices are rising (above 5%/year) due in part because of low inventory of homes.
- Home prices have returned to pre-recession highs, but the home ownership rate is at its lowest since 1965
Part of the reason the home ownership rate is still low is because so-called “Millennials” are having a hard time deciding whether to rent or buy
- First time home buyers are impacted by the burden of student loans and bad credit (coming out of the recession when they may have lost jobs or couldn’t find jobs coming out of college so couldn’t repay student loans)
- U.S. employment is looking more positive, with the unemployment rate at 4.7% (in December)
- Millions of available jobs are unfilled because of a lack of qualified workers — and, increasingly, failed drug tests
- Open jobs include computer software engineers, nurses, math and science teachers, truck drivers, machinists, welders
- North Carolina remains one of the fastest growing U.S. states in terms of population. NC needs to create 62,500 jobs per year to keep up with the projected population growth for the next 20 years.
- More than 50% of all jobs created in NC since the Great Recession were created in  Raleigh/Durham/RTP and  Charlotte
- Job growth in NC has been above 2% since the Great Recession, outperforming the nation
- PERSONAL DEBT
- Student loan debt is now $1.3 trillion, which exceeds consumer credit debt in the U.S.
- The student loans create a real problem for graduating students trying to buy a house
- Student loans (the availability of money) helps drive tuition increases (and vice versa)
- Since the 1970s, the cost of college tuition and fees has sharply outpaced the price increases in healthcare costs and cars
- Higher education is going to price itself out of business unless we find some way to deliver it at a more competitive (cost)
- On the West Coast they are forming schools where students go to learn information technology skills. They go to school 8:00 am to 5:00 pm, 5 days a week, and after 9 months they have a degree and they make $100,000 per year. That’s what (colleges and universities) are going to wind up competing against.
- Rate of inflation is finally ticking up
- Fed will probably increase rates three times this year
- Everyone thinks the Fed runs the U.S. economy, but the problem with the U.S. economy is not a monetary problem. It is a physical problem. It is what is going on in Congress and with the President.
- What should we do:
- We need to stop increasing regulations
- “Regulations are like a ball and chain that businesses have to drag around.”
- We need to build infrastructure
- We need immigration reform
- “I don’t think we will get immigration reform because there is too much rancor in Congress to achieve that.”
- We need to simplify and flatten the tax code for businesses and individuals.
- “England, Ireland, Japan…they have all lowered their marginal tax rates on corporations in the last year. Ours just sits there at 35%.”
- “Our tax rates on corporations are too high.”
- “There is $2.5 trillion sitting overseas because U.S. corporations will not bring the money back to the U.S. — because it is going to get taxed again. (Overseas profits) have already been taxed overseas, but if they bring them back they get taxed a second time. You would think that Congress and the President could come up with a number that would encourage companies to bring those dollars back to the U.S. to be invested in plant and equipment, which would lead to increases in productivity.
- We need to stop increasing regulations
- “I believe he will try as hard as possible to lower marginal tax rates on corporations. He says 15%. Good luck, but maybe 20%.”
- “There are seven tax brackets for individuals, maybe lower that to three or four.”
- “We definitely need the infrastructure spending. Everybody in the world knows it.”
- “Obamacare has some good points and bad points, but it is incredibly expensive and getting more expensive all the time. We clearly need to tweak it.”
- “We need serious regulatory reform, to start reducing regulations. That’s one thing I think we are going to see. Every president gets to appoint 4,000 people to positions in government. So now there will be 4,000 new people (at the various departments) and this group (appointed by Trump) will be very business oriented and that is a good thing…That may be the most important thing that occurs in terms of stimulating the economy.”