Q3 Data Shows US Economy Slowing
As the effects of Trump’s 2017 tax cut are working their way through the US economy. Trump claimed that his policy would boost US growth to between 3 and 6% per annum and his critics said that they would saddle the US with an additional $1.5 trillion of debt over a decade. Whilst ordinary people saw some benefit from the tax cuts, the major beneficiaries were people on high incomes and larger businesses and corporations. The other aspect of the policy was for job creation, but with (official) US unemployment at already near record low levels, the scope for this aspect was always going to be questionable.
In 2018, the official Commerce Department reading of GDP was 2.9% for the year, marginally lower than the President’s prediction of 3% and way off the 6% he claimed as possible. But this was on the back of the tax cuts from the 2017 law and likely to be the high-water mark for the policy.
The Q3 growth figures for this year have come in and give an annualised rate of growth as 1.9% - very firmly below Trump’s target of at least 3%. Whilst many analysts were predicting that the figure would come in at 1.6%, it was enough to prompt the Federal Reserve to make a fourth quarter-point cut to the interest rate in order to stimulate the economy.
Most analysts believe that growth of about 2% represents the level that the US economy can sustainably achieve. Indeed, since 1947, the average growth for the US economy has averaged 3.21% including record contractions of -10% in Q1 1958 and a record high of 16.7 in Q1 1950.
2020 sees a Presidential election and as Bill Clinton once remarked it is “all bout the economy, stupid!”. Trump’s opponents will be quick to identify the fallout from his foreign trade policy decisions as a major reason for the slowing global and US economies, of course.