President Trump’s policies are driving an economic turnaround that puts him in the company of transformative presidents such as John F. Kennedy and Ronald Reagan, White House economists said Wednesday as they unveiled their first “Economic Report of the President.”
The report presents a highly optimistic view of the economy’s current condition and future course, with growth predictions that exceed most nonpartisan economists’ expectations. Economists also caution the White House’s efforts to juice growth could cause the economy to overheat and then careen into a downturn.
But the White House argues Trump’s economy has already outperformed expectations, noting 2.3 percent growth in the U.S. gross domestic product last year. And it argues the administration’s efforts to cut taxes and strip regulations can push growth rates far beyond recent levels.
“The Trump Administration is the first since that of President Ronald Reagan to see positive economic growth exceed its first-year forecast,” the White House said when it released the 568-page report.
Going forward, Trump’s team predicts 3 percent GDP growth for years to come. That’s short of the 4 percent growth Trump promised while campaigning, but it would still be a marked improvement from former president Barack Obama’s time in office.
“We’ve restored economic policies to where a sensible, rational country would put them,” said economist Kevin Hassett, head of Trump’s Council of Economic Advisers.
For now, however, the Trump economy is performing much as it did during Obama’s final years. Hiring during Trump’s first year in office was slower than the annual pace in Obama’s last several years, and the economic growth rate was similar in 2017 to what it was in 2014 and 2015. The one noticeable change has been a jump in business and consumer confidence since the election, according to nonpartisan economists.
Trump’s report repeatedly casts the Obama economy as a period of “stagnation” where the former president “worsened the wound” of the crisis with his policies. In contrast, the Trump economy is described as “reinvigorating,” “pro-growth” and visionary.
Every president since Harry Truman in 1947 has put out an annual economic report laying out a vision for how to boost growth and lower unemployment and making projections of what’s ahead for the next decade.
Forecasting where the economy is headed is notoriously difficult, and both Republican and Democratic administrations have been way off. Predictions from George W. Bush and Obama proved too optimistic. In 2011, the Obama team predicted growth would soar to 4 percent a year in 2012, 2013 and 2014. Growth didn’t come close to that.
Most independent economists think Trump’s forecast is also too rosy. The current expansion is already nine years old, making it one of the longest periods of growth in U.S. history. Trump is projecting he can beat the 1990s expansion to usher in the longest expansion ever.
Economists warn that there’s been a dramatic change since the 1990s: America’s population is a lot older now. Many baby boomers are retiring, which is dragging down growth. On top of that, Trump wants to restrict immigration. With fewer workers in the economy going forward, the United States could struggle to match past growth rates.
Macroeconomic Advisers, a top forecasting company, predicts 2.7 percent growth this year and 2.6 percent in 2019, but after that, growth is expected to fall back to 1.8 percent.
“The pretty solid growth we’re showing over the next couple of years is in part the result of the boost from the Tax Cut and Jobs Act, but that’s only a temporary boost in growth,” said Ben Herzon, senior economist at Macroeconomic Advisers. “The only way to get to 3 percent growth on a sustained basis is faster growth of the labor force or faster growth of productivity. I just don’t see that happening.”
Productivity has been stubbornly low in the United States since the dot-com era, and that slowdown has occurred in Europe and Japan as well. The Trump team forecasts a large jump in productivity as businesses use their tax savings to invest more in new equipment, factories and technology. Business capital spending did rise in 2017, but it’s still nowhere near where it was in the 1990s.
The Trump administration is relying on “faith-based economics,” said Ed Yardeni, head of Yardeni Research.
Trump says he’s just getting going. The report touts the benefits of the tax cuts. Based on the latest totals, White House economists note “over 300 companies” have announced bonuses, wage increases and extra contributions to retirement accounts. More than 4.2 million workers are enjoying the benefits right now, economists said, and Americans are starting to see the tax savings in their paychecks.
Trump’s team said the economy could get a further boost from more favorable trade agreements and an infrastructure deal. The White House is pushing lawmakers to pass legislation that would revamp the country’s roads, waterways and other infrastructure, though it faces a difficult path through a divided Congress because there is no clear way to fund the plan, and deficits could hit $1 trillion as early as next year.
The White House continues to argue that the tax cut will pay for itself with faster growth, but nonpartisan economists disagree. Congress’s Joint Committee on Taxation estimates the tax bill would add at least $1 trillion to the debt over the next decade, even after accounting for some extra growth.
A growing number of economists say a more likely course for the U.S. economy is a boom in the next year or two and then a bust. They foresee all the extra spending in Washington and the deficit-financed tax cuts are likely to cause the U.S. economy to overheat.
“We are prepared to risk the whole economy for the sake of one point of extra GDP,” said economist Desmond Lachman at an event last week at the right-leaning American Enterprise Institute. He sees rising risks, especially if inflation starts to rise rapidly, forcing the Federal Reserve to increase interest rates sharply in the next two years.
The Trump administration pushes back on such grim forecasts, with officials saying they think inflation will remain low — around the Fed’s 2 percent — for years to come, even with all the extra stimulus from the tax cuts and higher government spending.
Trump’s approach to the economy, much like Reagan’s, is meant to trigger businesses to spend and invest more, which his advisers say will cause wages to rise and growth to stay high for years to come.
“If you think about our policies, then they’re almost, across the board, supply-side policies,” Hassett said. “We think that the beneficial effects of the supply-side stimulus, especially that begin to accumulate after this year, take a lot of pressure off of inflation.”