Trump’s growth goal is getting tougher

THE US economy is in better shape than last Friday’s firstquarter figures will probably indicate, but getting the growth that President Donald Trump wants is becoming even more difficult.

Gross domestic product probably expanded at a one per cent annualised rate from January through March, according to the median forecast in a Bloomberg survey of economists. As some transitory drags dissipate, economists project a second- quarter rebound similar to the pattern of the past three years.

Beyond the quarterly gyrations and a surge in optimism, annual estimates show just 2.2 per cent to 2.3 per cent growth through 2019, a tad above the average pace during the almost eightyear expansion.

While consumer spending will keep underpinning a moderately growing economy, Trump’s goal of three per cent to four per cent sustained expansion looks increasingly out of reach. For starters, the US faces longerterm constraints such as slowing labour-force growth, and productivity remains stubbornly weak.

On top of that, though some regulations have eased and Trump’s trade rhetoric has softened, there has been little real action on major policy changes such as tax cuts, healthcare reform and infrastructure investment, which are among the president’s top priorities.

“We’re in more of a steady state for the economy,” said Scott Brown, Raymond James Financial Inc.’s chief economist in St. Petersburg, Florida. While the economy is in decent shape despite a weak first quarter, “not much at all has happened on policy,” he said.

Trump’s GDP goal “is overly optimistic,” Brown said. “We could get a quarter or two of three per cent or four per cent growth, but it won’t last.”

“We believe we can get back to three per cent or higher” sustainable growth, Treasury Secretary Steven Mnuchin said Wednesday at a press briefing to announce Trump’s tax plan. Through tax cuts, deregulation and renegotiating trade deals, “we will unlock the economic growth that’s been held back for too long in this country,” he said.

Last quarter’s GDP weakness likely reflects a temporary drag from lower utility bills and tax-refund delays that weighed on consumer spending, which accounts for about 70 per cent of GDP. The Bloomberg survey projection of a 0.9 per cent pace for consumption would amount to the worst first quarter of the expansion that began in 2009.

While household purchases are forecast to recover amid steady hiring and wage gains, some risks remain for the coming quarters. Automobile sales seem to be plateauing, faster inflation is squeezing Americans’ purchasing power amid tepid wage gains, and the Federal Reserve’s plan to continue raising interest rates will make credit more expensive.

Other figures suggest the economy is doing just fine, according to Lou Crandall, chief economist at Wrightson ICAP in Jersey City, New Jersey. Hours worked are growing at a faster pace than the 2016 average, while industrial production excluding utilities is expanding at a four per cent rate. The Institute for Supply Management’s monthly surveys of manufacturing and service-industry executives have recently pointed to solid expansion, Crandall said in a research note this week.

Still, as the president reaches 100 days in office this week, it’s becoming tougher to live up to the lofty expectations seen in confidence surveys and stockmarket gains. Republicans in March withdrew a health- care bill and the administration’s August deadline for passing a tax plan has become less realistic.

“People need to see a tangible improvement if that confidence is going to manifest itself in hard economic data,” Gus Faucher, chief economist at PNC Financial Services Group Inc., who doesn’t expect much of a fiscal policy boost to GDP growth this year. “Sure, stock prices are up and there’s a wealth effect that may boost consumer spending, but unless we get some tangible policies and not just feel- good stuff then I don’t think the boost in confidence is, in and of itself, going to lead to anything.”

Corporate America has little incentive to accelerate spending as executives wait for lower taxes, an infrastructure boost and deeper cuts to regulations such as those from Dodd-Frank, the 2010 financial oversight law. While consumers are continuing to prop up the economy, getting faster growth calls for a heftier contribution from business investment. — WP-Bloomberg