The Country’s Stagnant GDP Growth Is Due In Large Part To Slowing Investment

Federal bankers are watching economic indicators—from job growth to inflation rates and GDP growth levels—closely to gauge the health of the economy, which will determine whether the country can handle a rate hike before the end of the year.

Georgia State University economist Rajeev Dhawan is convinced the country’s GDP levels are anemic, due in large part to a lack of investments in corporate, energy and tech. 

Rajeev tells Bisnow corporate investments—buying up big block real estate, investing in equipment and necessary transportation for companies—has been weak as of late. He projects it’ll take some time to pick up once election uncertainties are over and companies know exactly what’s going to happen in terms of trade and tax policies.

He says the decline in oil investments has also taken its toll on GDP growth.

“As oil-based investment took a big hit, and it was investment in commercial structures like commercial buildings, building hotels and hospitals, that suddenly perked up and has kept the ship afloat in the last two years,” Rajeev (below) says. “While everyone was trying to do fracking nobody was paying attention to this thing, and once oil pricing dropped and fracking took a hit, the money got released for the commercial sector.”

Tech investment in communications equipment, software and intellectual property products—which now accounts for about 50% of total investment, according to Rajeev—has been weak the last six months. He attributes this decline to nervousness surrounding the US elections as well. “[Companies] are waiting for the elections and other uncertainties to pass before they decide to do something. This investment can stop and start really quickly,” he tells us. 

US GDP levels have hovered around 1% the past three quarters, and Rajeev tells us the year prior the country was averaging 2.3% within the same three quarters. He doubts the Federal Reserve will be inclined to boost interest rates before the year is complete.

In all, Georgia State University’s Economic Forecasting Center projects in its national report the country’s GDP growth will rise to 1.5% in 2016, 2.3% in 2017 and then see a slight decline to 2.1% in 2018. Business investment will plummet to 1.1% this year, the university projects, though it should rebound to 3.3% in 2017 and leap to 5.6% by 2018.

“In my forecast the Fed is not going to raise rates until next year,” Rajeev says. “But whenever they raise it, it’s going to send a positive signal.”