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U.S. economy is still missing this one critical piece to happier days

MarketWatch logo MarketWatch 8/20/2017 Jeffry Bartash

The U.S. is like a machine, experiencing 2% growth year after year. But the economy is still missing a few key parts.© Provided by Dow Jones & Company, Inc. The U.S. is like a machine, experiencing 2% growth year after year. But the economy is still missing a few key parts.

The U.S. economy is gliding ahead like a sailboat on the mildly windy day, but it can’t race forward like a cigar boat unless businesses gun the throttle on investment.

Early in the presidency of former businessman Donald Trump, companies have ramped up investment. But they still aren’t spending at a rate that will move the needle on the economy’s speedometer.

Perhaps buoyed by a more business-friendly White House, firms increased investment in the first five months of 2017 before spending slacked off a bit in June, based on a measure known as core orders for durable goods. The latest report for July will come out Friday.

Still, investment remains about 10% below the postrecession peak set almost three years ago.

“If firms were truly acting on lofty expectations we’d be seeing more vigorous growth in capital spending,” said Richard Moody, chief economist of Regions Financial.

Lackluster business investment is one of the chief reasons the U.S. continues to bob along at about 2% annual growth, less than two-thirds the historic average. Investment is what spurs new inventions, makes it easier for workers to do their jobs and allows the economy to expand at a faster rate.

A souped-up economy in turn generates higher profits, fatter dividend payments and bigger paychecks for workers.

Whatever hope businesses may have had earlier in the year, however, has been clouded by the failure of a flailing Trump White House to push through tax cuts, more spending on public works and other measures to aid big and small companies alike.

Earlier this week, a number of high-profile CEOs of major U.S. companies such as Merck, Under Armour and J.P. Morgan resigned en masse from a pair of White House advisory councils after Trump’s controversial handling of violent demonstrations in Virginia.

Also read:Trump’s pro-business agenda at risk after corporate America abandons president

Now hardly any CEOs want anything to do with the president publicly even though they still support major parts of his agenda. They’ve also grown increasingly pessimistic about if or when he’ll achieve some of his top priorities.

Also read:Trump dumps Bannon, but White House wounds fester with little cure in sight

Others outside the corporate sector have also taken note. At a meeting of senior Federal Reserve officials last month, several pointedly noted that Trump’s plan for fiscal stimulus was likely to be smaller and take longer to enact than previously expected.

Even if those measures are adopted, relief won’t truly began to flow to business until next year. So there’s little reason for them to boost investment given all the uncertainty in Washington.

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