Tax cuts to spur economy, but not much, Fed economist predicts
The U.S. economy should continue its ninth year of economic growth in 2018, albeit at a more modest pace than the robust 3 to 4 percent GDP growth that President Trump has recently suggested, according to a top economist at the Federal Reserve Bank in Atlanta.
Dr. David Altig, director of research at the Atlanta Fed, said Wednesday the tax overhaul package approved by Congress last month should help propel the U.S. economy. But Altig predicts the tax cuts will give only a slight 0.18 percent boost in the growth pace of the economy.
Fed surveys found about a third of businesses said tax reform will encourage them to boost capital spending this year, but the rest don’t expect the tax cuts will make much difference.
Most workers should benefit by higher standard deductions or lower tax rates from the changes, and nearly 600 Chattanooga workers already are benefiting from $1,000 bonuses their employers announced they will get this year due, at least in part, to the tax overhaul package.
But even with the extra stimulus from the tax cuts, Altig expects the economy to grow at a similar pace to the estimated 2.5 percent growth rate in GDP in 2017.
“Overall, we’re not expecting much change as a result of this (tax cut) legislation,” he said. “And that may be a good thing because we should have a reasonable growth rate, but not a breakout period.”
With unemployment near historic lows and below the normal full employment level, an overheated economy threatens to push up inflation, cause labor shortages and possibly provoke a downturn.
With population growth slowing and more baby boomers retiring, Altig said it is more difficult than in the past to achieve the robust growth rates the United States had during the 1980s and 1990s.
Historically, periods of low jobless rates and times when short-term interest rates approach or even exceed long-
term rates like now have usually been followed at some point by economic recessions, including one of the most severe in the past century a decade ago. Since the end of the 20082009 downturn, the economy has grown steadily, if not spectacularly.
Altig cautioned that just because previous economic cycles of low unemployment and inverted yield curves have sparked downturns doesn’t mean that will happen any time soon.
“Just because there is a correlation between events doesn’t mean there is causality,” Altig said, noting that for no apparent reason the number of Nicolas Cage movies is closely correlated with the number of drownings in pools and the age of Miss America is strongly correlated with murders by steam.
Altig said the greatest growth this year and next should come in construction and transportation — two key industries for the Chattanooga region, which is home to some of the nation’s biggest trucking and carpet companies.
Altig’s forecast highlighted the annual mayors breakfast salute to local industry, during which both Chattanooga Mayor Andy Berke and Hamilton County Mayor Jim Coppinger said Chattanooga is growing faster than the U.S. as a whole.
Last year, employment in the Chattanooga area grew more than three times as fast as the rest of the country, placing Chattanooga among the top cities for job growth in 2017, according to a study of employment trends by the website 24/7 Wall Street.
“Chattanooga is a city that never tires of writing its next chapter in its story,” Berke said. “From the redevelopment of our waterfront, to the recruitment of Volkswagen, to the re-imagining of our Innovation District, we know that our arc is never complete. Our city is always ready to roll up our sleeves and go to work.”
Berke said the city is working to build a new Miller Park, extend M.L. King Boulevard to the Tennessee River and refresh the Innovation District as the residential population of downtown Chattanooga doubles from where it was just five years ago.
Coppinger said the Hamilton County Water and Wastewater Treatment Authority is moving ahead with plans to add a new sewage plant in East Hamilton County to open up more than 10,000 more residential lots for more residential growth and the county continues to invest more in public schools to upgrade the local workforce.
“We’re expecting some really good things in 2018,” Coppinger said.
Contact Dave Flessner at dflessner@timesfree press.com or at 423-7576340.