Gene Epstein‘s latest Barron’s column exposes the dangers of making overly optimistic assumptions based on economic data compiled during President Trump’s opening months in office.
The record reveals the hazards of extrapolating from 3% in a single quarter. Under the Obama administration, there were eight quarters of 3% or better, in certain cases much better. In 2014, growth in the second quarter of 4.6% was followed by 5.2% in the third quarter. But far from being “on our way” at that point, the gain in calendar-year 2014 still came in at 2.7%, followed by 2% in 2015, and 1.8% in 2016.
The economic expansion passed its eighth year in the second quarter, with average growth of 2.2%, the slowest since World War II. Trump has set sustained growth of 4% as his goal, but we can be a lot easier on him. If the economy manages to log 3% on a sustained basis, that will be achievement enough. However, if you do the math, even if the current and fourth quarters of this year come in at 3%, 2017 as a whole will be scored at 2.6%, given the first quarter’s dismal performance.
That first quarter is admittedly charged to Obama, but since Trump was talking about calendar years, I follow his lead. In any case, Hurricane Harvey should prune third- and fourth-quarter GDP numbers by a few tenths of a percentage point, due to reduced activity in the affected regions, especially since quarterly GDP math annualizes all effects, magnifying them fourfold. So 3% in 2017 isn’t likely.
As Brooklyn Dodgers fans used to say, however, wait till next year. At a minimum, we need to see quarters of 4% growth in order to have any chance of witnessing sustained economic expansion of 3%. On the policy front, Trump’s talk last week on tax reform was mostly talk, with few specifics. Even putting the best face on the effect of his sketchy tax reforms, the potential boost will probably take years to be felt.
