America's Other 30 Percent - Caixin Online

America's Other 30 Percent - Caixin Online

The once almighty American consumer is but a shadow of his former self...The cause is no secret. Consumers made huge bets on two bubbles – housing and credit. Reckless monetary and regulatory policies turned the humble abode into an ATM, allowing families to extract dollars from bubbles and live beyond their means.
That puts an enormous burden on the other 30 percent of the U.S. economy to generate any sort of recovery.
In fact, the other 30 percent has not done a bad job, especially considering the severe headwinds coming from consumers' 70 percent. The 30 percent mainly consists of four components: capital spending by firms, net exports (exports less imports), residential construction and government purchases. (Technically, the pace of inventory investment should be included, but this is a cyclical buffer between production and sales rather than a source of final demand.)
By contrast, the government sector has been moving in the opposite direction, as state and local governments retrench and federal purchases top out after post-crisis deficit explosions. The housing sector has started to recover over the past five quarters, but from such a severely depressed level that its growth has had little impact on the overall economy.
Given the strong likelihood that consumers remain weak for years to come, America's growth agenda needs to focus on getting more out of the other 30 percent. Of the four growth components that fall into this category, two have the greatest potential to make a difference – capital spending and exports.