The contrast between current economic conditions and the near-term outlook is striking. For now, we seem to be enjoying the sugar high from a tax cut that proved to be a Keynesian stimulus rather than a growth game-changer. Post contributor Jared Bernstein notes, “Deficit-financed tax cuts and spending added about a point to the 2018 growth rate. Unless Congress adds a lot more to the deficit than expected . . . the fiscal fade will give up that point by the second half of the year, and we’ll divert back to the trend growth rate of around 2 percent (though at least one credible forecast is for 1 percent).” Since “the Trump tax cuts have both cost more and done less than Republicans said they would,” the question remains: What happens as the stimulus fades but the huge debt remains?
Former car czar Steven Rattner, among the most sober and least partisan economists, reminds us that the Trump economic “miracle” wasn’t as miraculous as advertised. “The problem with Mr. Trump’s victory lap is that job growth during his administration has been slightly slower than it was during the last 22 months of Mr. Obama’s tenure: 4.2 million Americans hired under Mr. Trump versus 4.8 million under Mr. Obama,” he explains. “More worrisome is that Mr. Trump’s policies have done little to help manufacturing workers, whose votes in key states helped elect him; their share of total employment has not improved.” It’s true that low unemployment has finally helped push wages upward but, nevertheless, we’re left with “the middle 80 percent of Americans with wages that continued to decline in real terms through 2017 and only inched up in 2018,” Rattner says.
So now we look to growth predictions for 2019.
Since corporate investment hasn’t panned out as Republicans promised, the Trump trade war continues and the Federal Reserve will continue nudging interest rates higher despite Trump’s hectoring, the growth rate for 2019 will slow, most economists predict. “Most private economists expect U.S. growth to slow in 2019, in part because the initial impetus of fiscal stimulus is set to wane, meaning slower profit growth and more calls for a pause in Fed interest-rate increases,” the Wall Street Journal reported in early December. “A growth slowdown is unlikely to please a president who made much of the growth pickup in 2018. President Trump has blamed his choice to run the Fed — Jerome H. Powell — for working against his policies to charge up the economy.”
Then came some worrisome data: Third quarter growth was revised downward; U.S. manufacturing growth reached “a 15-month low for the index, while job creation also slowed to an 18-month low”; and the housing market continued to slump. (“Pending sales of homes in the U.S. fell again in November to a four-year low in another sign of widespread weakness in the real estate market that’s likely to continue into 2019.″) That doesn’t mean we are on the doorstep of a recession, but it does mean that we are ending a period of giddy economic news — without the ordinary fiscal and monetary tools at our disposal to keep the economy buoyant.
Looking at all this (including JPMorgan cutting its global growth prediction to 3 percent, China’s growth slowing and Brexit still destabilizing Europe), Rattner concludes that “only Mr. Trump believes we will achieve the promised 3 percent plus growth next year; about 2.5 percent seems more realistic, and some economists expect an even greater slowdown.”
Trump has relied on the economy he inherited and the tax-cut bubble to keep his presidency afloat. Without those benefits, Trump faces the consequences of his own policies — and a Trump slump that threatens his increasingly narrow base of political support.