The following article by Jeff Stein was posted on the Washington Post website January 26, 2018:
U.S. economic growth slowed in 2017’s fourth quarter, underscoring the difficulty President Trump faces in delivering his promised economic renaissance and increasing pressure on the Republican tax bill to achieve results few independent analysts predict it can.
Federal economists reported Friday the gross domestic product, a broad measure of the U.S. economy, slowed to an annualized rate of 2.6 percent from October to year’s end, breaking a two-quarter streak of growth at an above 3 percent pace.
The economy grew 2.3 percent in 2017, better than the year before, but far short of what Trump is promising. Officials had focused on 3 percent GDP growth as proof his economic policies were working, and Trump has said it could go far beyond that target.
Trump and Republicans are putting their hopes in the massive tax cuts they passed in December. The law slashed the corporate tax rate and dropped incomes taxes as well. The law took effect at the start of this month, and workers are expected to start seeing larger paychecks as soon as next month.
Republicans have promised their law will produce a surge in economic growth large enough to prevent the law from adding to the federal deficit, even as it offers more than $1.5 trillion in tax cuts over a decade. In December, Trump said he saw “no reason why we don’t go to even 4, 5 or 6 percent.” And while Trump often employs hyperbole, National Economic Council Director Gary Cohn in December said growth would “easily” eclipse 4 percent in 2018, once the tax cuts took effect.
Independent economists also predict the cuts will goose the economy, at least in the short term, but not at rates anywhere near what the White House is promising. The International Monetary Fund on Monday projected 2018 growth of 2.7 percent — bumping up an earlier estimate of 2.3 percent thanks to the tax law.
For now, however, the economy under Trump is performing much as it did under President Barack Obama. The U.S. economy grew 1.5 percent in 2016, 2.9 percent in 2015 and 2.6 percent in 2014. It has grown every year since 2009, when it contracted 2.8 percent in the aftermath of the financial crisis and burst housing bubble.
Unemployment is low and inflation appears fully in check, while wages continue to creep upward. And in 2017, the economy added 2.1 million jobs, compared with 2.2. million in 2016, federal economists reported earlier this month.
Conservatives are still hoping for a higher number in 2018, but they acknowledged the latest growth numbers represent a setback. “I’ve been saying 3.5 to 4 percent growth for the first half of 2018, but since this number is on the low side I’m going to downgrade my estimate for the first half of 2018,” said the Heritage Foundation’s Stephen Moore, who helped Trump craft his tax plan during the campaign.
Economic growth, however, is affected by far more than presidential policy, as businesses move in cycles of investment and consolidation while consumer confidence ebbs and flows. U.S. growth is also heavily affected by economic global conditions, changing U.S. exports and influencing foreign firms’ interest in investing in the United States.
Trump’s economy also faces challenges from the Federal Reserve, which is slowly unwinding the extraordinary efforts it undertook over the past decade to stimulate growth. The Fed dropped interest rates to historic lows, hoping to prompt businesses to borrow money to make new investments and hires. Now, the Fed is incrementally raising rates, hoping to ward off future inflation and preserve tools it needs to address the next recession. Those increases are expected to continue under incoming Federal Reserve Board Chair Jerome H. Powell, who was confirmed by the Senate earlier this week.
The federal Bureau of Economic Analysis provides the GDP figures, which are subject to revision as the agency collects more data. The agency on Friday tweaked its growth estimate for the third quarter of 2017, now saying the economy grew at an annualized rate of 3.2 percent in the third quarter.
“It was a miss, but remember it’s just the first read — it will probably be revised up,” said Karyn Cavanaugh, senior market analyst at Voya Investment Management.
2017 growth was held back by a particularly slow first quarter, when the economy grew at an annualized rate of only 1.2 percent.
In the fourth quarter, an increase in imports that widened the American trade deficit helped slow GDP, as did a drop in inventories relative to the third quarter. But experts said that robust consumer spending and business investments, as well as a surging stock market, contributed to the overall economic growth, suggesting robust economic health for this year.
“Domestic demand itself is the best we’ve seen since 2014,” said Satyam Panday, an economist at S&P Global. “That bodes very well for 2018.”
View the post here.