The “secular stagnation” thesis is having a bad year. Readers will recall that this idea, popularized by former Obama White House economist Larry Summers, held that America is fated to endure slow economic growth. This conveniently justified the Obama era’s historic slow growth as an inevitable deus ex machina, and Mr. Summers’s policy advice was for government to borrow more money to spend on public works.
A year after the Obama economists left town, stagnation may be following them back to Harvard. The Commerce Department announced Friday that the U.S. economy grew 2.6% in the fourth quarter of 2017, below what most economists expected but the third straight quarter of solid growth.
The details of the GDP report were stronger than the top line that was reduced by the volatile categories of trade and inventories. A fall in inventories accounted for most of the decline in growth from the third quarter, but inventories ebb and flow and the measure will rebound in future quarters. Exports rose more slowly (6.9%) than imports (13.9%), which reduced the trade contribution to GDP.
Consumer spending rose a healthy 3.8% in the quarter, while business nonresidential investment climbed 6.8%. The latter continues the trend during 2017 of rising capital spending, which underperformed across the Obama years. It’s not too much to say that capital was on strike as CEOs and small-business owners tried to avoid becoming a target of new taxes or Obama regulators.