“The Business of America is Business”
The title of this blog is a quote from a January 17, 1924 speech by then President, Calvin Coolidge. According to Wikipedia, the ultimate assessment of his presidency is still divided between those who approved of his reduction in the size of government programs and those who believe the federal government should be more involved in regulating and controlling the economy.
This may be a good time for investors to reflect on the words and actions of President Coolidge.
Current economic growth, of approximately 2%, is well below historical levels. This is also worse than the average for previous periods of recovery following a recession. Lackluster growth rates are probably a material factor in unusually low rates of workforce participation, record low levels of wage growth and weak consumer demand.
At the same time, the last several years have seen a material increase in regulatory activity and government efforts to “direct” the economy. Think “Obamacare”, mandated increases in vehicle fuel economy, with subsidies for electric cars, and a push toward renewable electric generation.
Never-the-less, the stock market has performed very well, despite weak economic growth, primarily due to corporate America’s focus on margin improvement and the rapid growth of innovative technology based businesses. This may not be sustainable without a material improvement in overall economic growth.
Investors will have to consider to what extent the increase in government intrusion into the market place has contributed to slower than historical growth. There is no clear line delineating cause and effect.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA®
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