US economy dependent on consumers, needs other sectors to contribute to GDP growth - Wells Fargo

Analysts from Wells Fargo, point out that the US economy is highly dependent on consumers and that it is time for other sectors to contribute more to GDP growth.

Key Quotes: 

“Back in the 1980’s, real U.S. personal consumption expenditures (PCE) represented about 63 to 64 percent of the U.S. economy. Today, PCE is close to 69.5 percent of real gross domestic product (GDP), up from about 67 to 68 percent since the turn of the century. The latest push by the U.S. consumer has occurred since 2014 and represents a historical peak for the U.S. consumer.”

“So, how is it that PCE is, today, about 69.5 percent of GDP, if the contribution to GDP growth is so small? The answer is that the U.S. consumer is basically the only, or one of the few, components of GDP that is actually contributing positively to growth.”

“That is, real government consumption, real gross fixed investment and net exports are not contributing much to the rate of GDP growth. This is the reason why PCE as a percentage of GDP has continued to increase in the face of declining contributions to GDP growth.”

“Investment in the energy sector during the high oil price period helped push gross fixed investment’s contribution to GDP higher. However, that process has reversed since the collapse in oil prices. Meanwhile, the contribution from net exports has been almost consistently negative. Meanwhile, the contribution from government expenditures has also been weak to non-existent.”

“The prospect of lower taxes in President Trump’s tax reform plan could boost real disposable income growth and thus help improve the rate of growth of PCE. However, there is probably little more punch left in the consumer today, so other sectors will need to pitch-in if we want to see an improvement in overall economic growth.”