During his campaign, Donald Trump promised to jump-start the economy, but now the reality of slow growth seems about to intrude.
During the election campaign, Donald Trump promised to jump-start the American economy and generate annual Gross Domestic Product growth of four per cent, which would represent roughly a doubling in the rate that we’ve seen since the Great Recession ended. At times, Trump made four per cent sound like a conservative estimate. “My great economists don’t want me to say this, but I think we can do better than that,” he said, in September of last year.
Since Trump got elected, some of his economic advisers, such as Steven Mnuchin, the Treasury Secretary, have tried to downplay expectations a bit. But Trump hasn’t. In his address to a joint session of Congress, in February, he said, “A new surge of optimism is placing impossible dreams firmly within our grasp.” He has made similar arguments on social media. Last week, he tweeted, “Economic confidence is soaring as we unleash the power of private sector job creation.”
Yet reality seems about to intrude on this Trumpian narrative. At the end of next week, the Commerce Department will release its initial estimate of how the U.S. economy did in the first three months of 2017, a period in which Trump was President for all but nineteen and a half days. Far from showing a quantum leap in G.D.P. growth, the official figures are expected to show a slowdown.
In January, when Trump took office, Wall Street economists were expecting first-quarter G.D.P. growth of about 2.3 per cent on an annualized basis, a respectable if unspectacular rate that would have surpassed the 2.1 per cent recorded in the final three months of last year. Since February, however, many economists have been downgrading their forecasts.
With retail sales softening and auto production falling, the widely followed Blue Chip consensus of forecasts projects that first-quarter growth will come in at under 1.5 per cent—and some experts believe even that number could be overestimated. The Federal Reserve Bank of Atlanta’s G.D.P. Now model, which combines various economic statistics to provide a “nowcast” of G.D.P. growth, puts the annualized growth rate at just 0.5 per cent.
It’s always dangerous to rely on economic forecasts. The actual figure from the Commerce Department could still surprise on the upside. Even if it doesn’t, it should be treated cautiously. The initial estimates of quarterly G.D.P. growth are based on limited data. As a matter of routine, they are subsequently subjected to two revisions, which are sometimes substantial. Three months from now, growth in the first quarter could look quite a bit stronger (or weaker) than it does now.
That said, a number of indicators suggest that the economy has slowed down recently. The latest employment report from the Labor Department, which came out a couple of weeks ago, showed that payrolls rose by just ninety-eight thousand in March, the lowest figure since last May. And last week the Commerce Department announced that retail sales fell back slightly in February and March, the first decline in consecutive months since early 2015.
On their face, these figures are puzzling. Numerous surveys indicate that consumers, as well as businesses, have grown more confident since Trump won in November. But as Carl Tannenbaum, the chief economist at Northern Trust, told the Wall Street Journal, “The rising levels of confidence we’ve seen since the election hasn’t translated. Consumers are saying one thing in response to a survey, but doing something different with their wallet.”
How should we interpret these developments? The rational reaction is that we shouldn’t read too much into one quarter of slow G.D.P. growth, but neither should we be surprised that Trump’s election didn’t translate into an immediate pickup in the economy.
Some of the recent slowdown can be attributed to falling sales in the auto sector, which were perhaps inevitable after record sales during the past couple of years. The unusual winter weather may have played a role as well. Moreover, the economy has several times in the past few years seemed to falter during the first three months of the year, only to pick up again later on. Many economists expect that pattern to repeat itself this year. For 2017 as a whole, the Blue Chip consensus is still predicting G.D.P. growth of slightly more than two per cent, which would represent a modest acceleration from last year’s growth rate of 1.6 per cent.
It should also be noted, though, that many of these rosy, early forecasts were based on the expectation that Trump would get at least some of his domestic agenda enacted pretty quickly, particularly tax reform, which was expected to provide a modest fiscal boost to the economy. “Failure by Republicans in Congress to repeal and replace the Affordable Care Act and to pass tax reform legislation this year would likely prompt panelists to cut their forecasts of economic growth for 2017 and 2018,” Randell E. Moore, the executive editor of the Blue Chip survey, noted recently.
That scenario now looks like a reality. Despite Trump’s statement on Wednesday that “we’re on time, if we get that health-care approval,” there seems to be little prospect of a new G.O.P. health-care plan making it through Congress anytime soon. The timetable for tax reform, which would likely have a bigger immediate effect on over-all economic growth, is also highly uncertain.
Earlier this week, Mnuchin conceded that the Administration is unlikely to hit its target of getting a tax-reform package passed by the summer. It hasn’t even released a plan yet—and the same is true for infrastructure. As for Trump’s pledge to boost job creation and G.D.P. growth by renegotiating trade agreements and bludgeoning open foreign markets to American goods, that seems more fanciful by the day.
What we are left with, then, is a President whose policy agenda appears to be largely stalled, and an economy in which not much has changed. With the unemployment rate down to 4.5 per cent, low interest rates, and wages finally picking up a bit, it seems likely that consumer spending will rebound in the months ahead, boosting the rate of G.D.P. growth. However, even if growth does rebound from the weak first quarter, as the forecasters are predicting, it will mean that the economy is, basically, chugging along at the same modest pace it has been since the current recovery began, in the summer of 2009.
That wouldn’t be a disaster. It would simply mean that Trump’s campaign promises were empty ones. But you probably knew that anyway.