Trump’s Impact on the Economy

Trump’s Impact on the Economy


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Trump’s Impact on the Economy
By:
02 Dec 2016
Business

Donald Trump’s election is not likely to have much effect on GDP growth in 2017, which we expect to be around 2.1%. His proposed tax cuts will have the quickest impact on the economy, but as demonstrated by the 2001 and 2003 Bush cuts, consumers tend to use the initial tax savings to pay down debts. Increased spending, which boosts GDP growth, tends to come later. Trump’s proposal for extra infrastructure spending probably won’t be approved by Congress until the 2018 fiscal year, which starts in October 2017. After approval, it takes months for the money to be spent, as the experience of the 2009 stimulus bill shows. Getting the necessary permits can delay infrastructure projects even more.

Meanwhile, the rise in interest rates and the value of the dollar since the election will act as a drag on 2017 GDP growth. Strong consumer spending, driven by wage and employment gains plus the buoyant stock market, is likely to be the main pillar supporting the economy next year.
 

We do expect GDP growth in 2018 and 2019 to be spurred by the fiscal stimulus of tax cuts and infrastructure spending, however. Instead of the 2.2% growth we previously expected for those years, we now look for the economy to expand by 2.5% to 3%, depending on how much of Trump’s program is actually approved and whether Congress enacts other spending cuts to reduce the deficit.

GDP grew by 3.2% in the third quarter, its best rate in two years. While this was welcome news, part of the strength came from exports, which is not expected to continue. The better news was that business spending on inventories went up, not down as feared. That may be a sign of improving business confidence.

Consumer spending grew at a decent 2.8% in the third quarter following a strong second quarter. Purchases of motor vehicles surged 20% at an annual rate, but this also is not expected to continue. Businesses cut back on purchases of equipment, especially cars and trucks, but increased spending on new buildings. Spending on mining equipment and structures continued to decline, though the falloff has been lessening, and will likely stabilize next year. Federal government spending picked up, as expected, but state and local government spending remained flat and is unlikely to increase.

For the year as a whole, we now see U.S. GDP growing by about 1.5%,versus 2.6% in 2015. Growth in the fourth quarter will likely come in at 2% to 2.5%, putting second-half 2016 growth comfortably above the first half’s modest 1% pace.


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Rahul Raj

Rahul Raj

This lazy StoryTeller forgot to write something about itself.


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