US May Fall Short of Trump’s Goal of 3% Growth – Closer to 2.2%

WASHINGTON—President Trump set a goal, a good goal for everyone. He wanted to hit 3% growth. Unfortunately the US may fall a bit short of that goal by about .08%. Although the economy has been rather robust this may not be something he would want strolling into 2020 with the election looking like it might be close.

Growth Over the Next Couple Years

Private-sector economists surveyed in recent days expect U.S. gross domestic product (GDP) to expand an inflation-adjusted 2.2% (missing the 3% goal) this year on average, measured from the fourth quarter a year earlier. Forecasters surveyed expect economic growth will slow to 1.7% in 2020 and will be 1.9% in 2021.

White House Projections

By contrast, the White House said in July it expected the economy would grow 3.2% this year. It predicted expansions of 3.1% in 2020, and 3% in each of the following four years.Downside Tilt Is the risk to your U.S. gross-domestic-product growth forecast for the next 12 months more to the upside or downside?

“There’s no visibility to 3% right now,” said Brian Bethune, an economist at Tufts University, citing trade uncertainty, economic weakness in Europe and the 2020 U.S. presidential election.

Year-over-year growth in the fourth quarter of 2018 was 2.5% and 2.8% for 2017. That performance fell short of the 3% growth rate President Trump targeted with his policies of tax cuts, deregulation and a tougher trade stance.

It isn’t that uncommon for the White House in any administration to project a higher outlook than economists. This year the Trump administration’s 2020 budget projects much stronger growth than many independent forecasters, who see the economy slowing as the effects of fiscal stimulus measures wane. Gross domestic product grew at a 2% annual rate in the second quarter of this year and 3.1% in the first quarter. 

The White House said Thursday morning that it stands by its economic growth projections. “Are these the same economists who preached that slow and stagnant growth was the new normal?” spokesman Judd Deere said in an email. This was to be expected.

He added that “despite headwinds from severe monetary tightening and a global recession, President Trump’s agenda has created the strongest economy we’ve ever seen,” with robust job creation, rising wages and high consumer confidence. All of those statements are true. There had been a huge addition of jobs across just about every sector in recent years.

National Economic Council Director Larry Kudlow said last week that employment growth and productivity gains during the past two years, which he attributed to the administration’s economic policies, have bolstered economic growth.

“The economy’s potential is now moving above 3% for the first time in probably 20 years plus,” he said Friday in an interview with CNBC. Recession Odds Rising The average probability of the economy being in a recession within the next 12 months.

Trump and The Feds

Mr. Trump has attacked Federal Reserve Chairman Jerome Powell and the central bank’s monetary policy in recent months, calling for lower rates to spur the economy. He described the second-quarter growth rate as:

“not bad considering we have the very heavy weight of the Federal Reserve anchor wrapped around our neck.”

Jerome Powell

On Wednesday, Mr. Trump called for rates below zero for the first time.

Nonetheless, the 3% growth target was based on short-term interest rates rising. In early 2018, the White House predicted that GDP growth in 2019 would be 3.2% and 3.1% in 2020, even as it expected three-month Treasury bill rates would average 2.3% in 2019 and 2.9% in 2020.

The three-month Treasury bill moves closely with the Fed’s benchmark federal-funds rate, which is currently in a range between 2% and 2.25%. The yield on the three-month bill stood at 1.95% on Thursday morning.

In the latest survey, only three economists out of 60 expected the quarterly growth rate to hit 3% or higher at any point this year or next.

Many economists see powerful forces restraining U.S. economic growth, such as an aging population and choppy advances in productivity.

Economists’ expectations in the latest Wall Street Journal survey are broadly in line with those of Fed officials, who expect the economy to grow 2.1% in 2019. They forecast expansion of 2% in 2020 and 1.8% in 2021.

China Trade Dispute Causing Uncertainty

For economists surveyed, the most significant factor creating uncertainty for U.S. businesses and consumers is the trade dispute with China. When asked about the biggest downside risk they see for the economy, 61.5% of economists cited trade, tariffs or exports. They also estimated the likelihood of a recession in the near term was rising. The average probability of a recession in the next 12 months was 34.8% in the September survey, up from 17.7% a year ago.

The Journal’s survey of 60 business, financial and academic economists was conducted Sept. 6-10. Not every forecaster answered every question.

About the author: Real Estate Agent

I am the owner and employing broker at a real estate company located in Colorado. I was asked to be a guest blogger on Politically Social due to my work experience as a small business owner, a day trader and the owner of a real estate brokerage firm. I have spent most of my adult life as a person in tuned with the business world and studying the economy.