Economic Growth

REAL GROSS DOMESTIC—meaning growth adjusted for inflation—climbed 3.6% a year over the 50 years through early 2000, according to data from the U.S. Department of Commerce’s Bureau of Economic Analysis. But over the 25 years that followed,  real GDP grew at just 2.1% a year.

The big question: Are there structural impediments that are restraining economic growth, and do those impediments mean we won’t regularly notch the 1950-2000 average of 3.6% a year?

Some experts have argued that income inequality is crimping economic growth. Low-income earners tend to save less of their income and spend more, so sluggish wage growth could mean slow economic growth. Others wonder whether the economy is being hurt by the aging population and the workforce’s slower growth.

All this should concern stock investors. The reason: Slow economic growth would mean slower growth in corporate profits—and that would be bad news for share prices.

Next: What Drives Growth

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