In the annual Economic Report of the President released on Thursday, Trump’s Council of Economic Advisers predicts that if the president and Congress do not make further policy changes, the U.S. economy will grow at a 2.4 percent annual pace this year and at a 2.3 percent pace in 2021. That kind of growth is well below what Trump promised and similar to what occurred under President Barack Obama.
The report is the latest acknowledgment by the Trump administration that the economy is unlikely to grow at 3 percent or faster, a goal Trump has yet to achieve in his presidency. The economy grew 2.3 percent last year, 2.9 percent in 2018 and 2.4 percent in 2017, according to the Commerce Department. Trump’s large tax cut and his increase in federal spending lifted growth in 2018, but it has since moderated, especially after he escalated his trade wars. Business leaders were spooked by Trump’s fondness for tariffs on goods from China and other nations and pulled back sharply on investments in factories and equipment, creating a drag on growth.
To achieve faster growth, Trump’s Council of Economic Advisers says, there would need to be more deregulation, immigration reform, passage of an infrastructure plan, more trade deals, incentives to get more Americans working and permanent tax cuts for American households (the corporate tax cuts that Republicans passed at the end of 2017 are permanent, but the individual tax cuts are set to expire after 2025). Most of these policy changes require Congress’s help, an unlikely scenario as long as Democrats control at least one chamber of Congress.
Many of the policy changes would also come with high price tags. Trump’s economists predict the federal deficit will top $1 trillion this year. The deficit has risen nearly 50 percent since Trump took office.
Still, growth at around 2 percent is likely to be enough to keep the economy healthy and keep businesses steadily adding jobs every month. Goldman Sachs predicts that the unemployment rate will fall this year to 3.25 percent, a level not seen in more than 65 years. The vast majority of Americans say this is the best economy since the late 1990s. Independent voters and less-affluent voters are increasingly likely to give the economy high marks, which should help Trump as he seeks reelection.
“Growth has accelerated since the election in 2016, more than seven years into the recovery. This acceleration occurred despite monetary policies,” said Tomas Philipson, the acting head of Trump’s Council of Economic Advisers.
The White House has repeatedly accused the Federal Reserve of hurting growth, although most economists say the central bank’s interest rate cuts last year helped prevent a major slowdown.
Trump and top White House officials argued that the faster growth seen in 2018 would last, but many independent forecasters characterized it as a temporary sugar high from the stimulus measures. The White House also predicted a boom in business investment after the tax cuts, but that has not materialized. Business investment outside of home building shrank for much of last year.
“Initially, we saw a huge surge in investment. Once we got a renegotiation of trade agreements, we saw uncertainty in the market, and investment took a hit,” Philipson said.
Philipson predicted a jump in business investment this year, but that is likely to hinge on trade policy and better global growth. Last year brought the slowest global growth since the Great Recession, another factor making business leaders nervous. Many big banks foresee a rebound this year, but the novel coronavirus is causing a substantial drag on the Chinese economy that is spilling over to nations including Japan, South Korea and Singapore.
This latest White House economic forecast does not take into account the impact of the coronavirus. Philipson and Trump adviser Larry Kudlow continue to think the U.S. economy will experience only a modest impact — about 0.2 percent — from the coronavirus in the first quarter.