President Trump came into office promising to make the economy grow at rates the United States hasn’t seen for decades. On Friday, as the government reported that the U.S. economy expanded in the first quarter at its slowest pace in three years, he got a glimpse of just how far he has to go.
In the first official growth estimates of Trump’s presidency, federal economists reported gross domestic product, a broad measure of economic growth, grew at an annualized rate of just 0.7 percent in the year's first quarter, down from 2.1 percent growth in the fourth quarter of 2016.
The report underscored the challenge the White House faces in reaching its target of 3 percent growth, an expansion Trump not only promised on the campaign but is counting on to fuel his broader economic agenda. The administration is proposing steep tax cuts, and top Trump officials argue those policies will deliver enough economic growth to essentially pay for themselves, with new activity allowing the government to collect the same amount in taxes despite the reduced rates.
But if that growth fails to materialize, the tax cuts would lead to a massive and potentially destabilizing increase in the national debt as the federal government borrows to make up the gap between elevated spending and falling revenue.
“Tax cuts are a good idea — they help growth — but only if they’re paid for,” said Mark Zandi, chief economist at Moody’s Analytics. “The proposal the president put forward on Wednesday would blow a big hole in the budget, and that won’t help the economy.”
Friday’s report also noted that consumer spending grew at just 0.3 percent in the first quarter, the slowest pace since 2009.
Reduced spending at all levels of government weighed on GDP, as did a strong dollar that lowered exports and increased imports.
Asked for comment on the report, the White House pointed to a statement from Commerce Secretary Wilbur Ross, who said it demonstrated why the president’s agenda was needed “to overcome the dismal economy inherited by the Trump Administration.”
Yet Trump has not shied from taking credit for positive economic news early in his administration. Following the release of strong February job-growth numbers, Trump retweeted this from the conservative Drudge Report: “GREAT AGAIN: +235,000.”
Economists caution that it is probably too soon for Trump to have exerted much influence over the economy either way. He has not had a chance yet to put many policies in place, and if he does, they will take time to yield results.
The first-quarter report may have also painted an overly negative portrait of the economy. Because of measurement complications, first-quarter economic growth is often underestimated in government reports. Additionally, one-time events such as unseasonably warm weather in January and February dragged down the reported growth rate, since Americans ended up purchasing significantly less electricity and gas to heat their homes.
“I don’t think there’s real cause for alarm, because there were a lot of temporary factors that were hurting growth in the first quarter,” said Leslie Preston, a senior economist at TD Economics.
Many economists expect U.S. growth to rebound in the second quarter of 2017, and they believe it to be on solid footing in general, especially as it is bolstered by the improving economic situation abroad.
Still, in the long term, they expect GDP growth to hover around 2 percent. They argue that the economy Trump has promised — one in which GDP is expanding at a pace of 3 percent a year or more and 25 million new jobs are created in the next 10 years — is probably unattainable.
Long-term changes in the economy, including demographic trends such as the aging U.S. labor force, also will complicate Trump’s bid for rapid economic growth, the experts say. Although more Americans have gone back to work since the financial crisis nearly nine years ago, the percentage of the population that is working has declined in recent years as baby boomers retire, limiting how much the economy can produce. At the beginning of 2000, 67.3 percent of the adult population was working or looking for work. As of last month, that figure was 63 percent.
In defending Trump’s growth targets, many administration officials point to the economy’s performance under President Ronald Reagan. After an initial recession during the Reagan administration, GDP skyrocketed 7.3 percent in 1984 and continued at a rapid clip for the rest of his term.
Reagan, however, had advantages that Trump will not have. In the 1980s, women were swelling the ranks of the labor force and the economy was on the verge of a technological boom. Today, growth in productivity — an important measure of how much the economy can produce — has stalled, for reasons economists do not well understand.
And while Trump hopes to boost growth through his proposed tax cuts and large-scale investments in infrastructure, the administration is considering other policies that economists say could weigh on growth. Trump plans to clamp down on immigration, which would further reduce the U.S. labor force. He has also entertained measures to protect U.S. industry from foreign competition that could start a trade war. This week, Trump threatened to pull the United States out of the North American Free Trade Agreement.
He later backed off, saying he would instead first try to renegotiate the pact.
The Trump economy could be further complicated by the Federal Reserve, which after nearly a decade of propping up the economy is now trying to make sure it doesn’t run too hot. At their meeting last month, Fed officials said that the economy was performing according to expectations and that they plan additional interest-rate hikes if the current trend continues. Investors are expecting another increase in June.
The Trump administration is not alone in its enthusiastic expectations for the economy. Surveys show that consumer and business confidence have soared since the November election, creating one of the biggest divergences in recent memory between soft data — measurements of how people feel about the economy and their future — and the hard data that government statisticians release each month.
Hard data has painted a more mixed picture. In the first two months of the year, the number of jobs added to the U.S. economy surpassed expectations. But the number of new jobs created slumped in March, partly because of a snowstorm that prevented some Americans from working.
Diane Swonk, a Chicago-based economist, took a dim view of Trump’s proposal to create 25 million jobs in the next decade.
“That's more than we generated in the 1990s, the longest expansion in the post-World War II period, which is significantly more robust than what we have now — mostly because we had a lot more people to employ,” she said. “Are you going to have 80-year-olds working at McDonald's now? What are we talking about?”
“There's been a resistance to deal within the constructs of mathematical reality,” she said.