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Trump’s First Quarter GDP Numbers Aren’t Exactly Impressive

Economy Heartbeat

The first estimate of Gross Domestic Product growth during the first quarter of 2017 reveals sluggish economic growth, indicating the difficulty that the Trump Administration faces in reaching its stated goal of ramping up economic growth to a pace we haven’t really seen during the ongoing recovery from the Great Recession:

The U.S. economy expanded at its slowest pace in three years in the first quarter of this year, according to government data issued Friday morning, as spending by consumers grew at a slower pace and government outlays fell.

America’s gross domestic product, a broad measure of economic growth, grew by just 0.7 percent in the first three months of 2017, a significant slowdown from the previous quarter that economists say is more likely due to measurement error than to Donald Trump’s performance as president. Most economists had been expecting a lackluster growth report for the first quarter, with analysts surveyed by Reuters predicting the figure would be around 1.2 percent.

Yet the report still highlights the challenge this administration — which marks Trump’s first 100 days in office on Saturday — will face trying to meet its target rate of 3 percent economic growth.

A rapid pace of economic expansion is crucial for Trump’s broader economic agenda. He plans to aggressively reduce taxes, which could leave the federal government short trillions of dollars in revenue unless the budget is bolstered by strong economic growth.

Consumer spending expanded in the quarter, though it grew at just 0.3 percent, the slowest pace since 2009. Reduced spending at all levels of government, as well as a strong dollar that weighed on exports and increased imports, brought down the official estimate. Federal economists count exports and public spending toward economic growth, so declines in these categories contributed to the low figure in Friday’s report. Trump has said that closing the gap between imports and exports is one of his chief priorities.

Markets opened on a slide Friday. The Standard & Poor’s 500 index had fallen 0.05 percent and the Dow Jones industrial average was down 0.1 percent by midmorning.

The report contains the first official estimates of economic growth under Trump and was coincidentally released on the 99th day of his new administration. The president and his aides have tried to show demonstrable progress on his chief priorities, including economic issues, before he concludes his first 100 days in office.

The weaker growth is partly due to persistent measurement issues, which have caused the government to underestimate growth in the first quarter for many years — and reflected poorly on other presidents in their first quarter in office.

In the fourth quarter of 2016 the final full quarter of President Barack Obama’s tenure, the economy grew by 2.1 percent, federal economists reported last month.

Most economists expect the pace of growth to rebound in the second quarter. All the same, the disappointing figure suggests a potentially worrisome gap between expectations for the new administration and the reality of how the economy is performing.

There are several caveats that should be applied in looking at this number, of course. First of all, this is simply the first of three estimates of first quarter growth that we will see, with the next coming at the end of May and the final number coming at the end of June. Because of the time involved in gathering the data necessary to measure the growth of an economy as big as ours, these estimates can and do often diverge from each other significantly in either a positive or negative direction. Therefore, it will be two months at least before we can really get a clear picture of how the economy performed in the first three months of the year. Second, as we have seen in years past the first quarter of the year always tends to be one in which the economy underperforms even the forecasts that are given. To a large degree, that’s because of the unpredictability of how the winter weather might impact the economy by causing consumers to stay home rather than go shopping and because one bad storm can impact the movement of good difficult, which even for a brief period could end up costing millions of dollars. If past years are any indication, we can expect at least a modest bounce back later in the year toward a growth rate more consistent with what we’ve seen so far in the recovery. It’s possible, of course, that this could be the beginning of a slowing trend that will be reflected elsewhere in the economy, but we won’t know that until further data is released for things like durable goods orders and employment. Finally, it’s worth noting that this number doesn’t really tell us much about the economic impact of a Trump Presidency. While he has been President for the majority of the first quarter, he hasn’t really accomplished enough to have had a real impact on the economy. Indeed, most of the economic impact of Trump taking office has been limited to a stock market boom that began the day after the 2016 Election and which can be explained at least in part by the fact that investors are expecting that the new Republican-controlled government will implement policies favorable to business. Whether that pans out over the long-term is a bigger question that we don’t know the answer to yet.

As has been the case for roughly the last eighteen months, one of the big questions that this release raises is how it may impact future interest rates decisions by the Federal Reserve. So far, we’ve seen modest increases in rates three times in fifteen months, with increases in December 2015, December 2016, and most recently in March 2017. That last increase is perhaps the most interesting in light of today’s release since it came near the end of the first quarter at a time when the Fed’s Board of Governors no doubt had access to at least some of the preliminary data making up today’s report. Presumably, if they believed that this was the beginning of a trend they likely would have held off on raising rates so the fact that they did so could indicate that they believe that these numbers will be temporary and that the economy will be back to the 2-2.5% growth rate we’ve seen for the majority of the recovery that began early in 2009.

On a final note, and notwithstanding one of the caveats I noted above, these numbers do pose a challenge for the new Administration if they hold up under revisions. The tax and spending programs that the Trump Administration is proposing and contemplating depend heavily on the idea that we’ll see economic growth at 3% and higher in the near future. Without it, these policies will result in revenue shortfalls that could be in the trillion dollar range and more, resulting in sharply higher budget deficits and a higher national debt that will likely lead to higher interest rates and slower economic growth. What these numbers, and the forecasts for the year ahead, tell us is that it’s going to be difficult to achieve the Administration’s forecast levels of growth, and that could mean significant trouble ahead.

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About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May, 2010 and also writes at Below The Beltway. Follow Doug on Twitter | Facebook

Comments

  1. Ben Wolf says:

    Atlanta Fed’s GDPNow forecast 0.2% for the quarter and is frequently more accurate than the BEA estimate. There’s a better than even chance the 0.7% figure will be revised downward.

    Like or Dislike: Thumb up 2 Thumb down 0

  2. gVOR08 says:

    This, of course, has little or nothing to do with Trump. Even had he implemented significant policies, it’s too soon for them to have effect. This is likely inevitable after a seven years of steady growth. Although it does call into question the Feds interest rate increase.

    However, fair is fair, and I feel one should mirror what the Trumpskyites would be saying had the number been better. That ignorant POS is already destroying the economy.

    Like or Dislike: Thumb up 4 Thumb down 0

  3. Daryl's other brother Darryl says:

    Meanwhile, with growth tepid, the market is booming. I realize the market is a lagging indicator, and not a very good one at that. But what I find interesting is the disconnect. It’s almost as if rich people getting a tax cut does nothing for the real economy.

    Like or Dislike: Thumb up 4 Thumb down 0

  4. Surreal American says:

    Obama’s fault.*

    *Channeling the OTB wingnut troll community.

    Like or Dislike: Thumb up 5 Thumb down 0

  5. Daryl's other brother Darryl says:

    @Surreal American:

    Obama’s fault.*

    Did you see where the Mango Mussolini is blaming Obama for not properly vetting Flynn?
    Keep in mind Obama fired Flynn.
    Comb-over Donnie takes no responsibility for anything.
    He is thus the perfect leader for the Republican Party; the only organization in the world where it’s expected that the alpha male will have no balls.

    Like or Dislike: Thumb up 9 Thumb down 0

  6. MBunge says:

    If Trump can’t generate better economic growth than Obama, he’d better do a whole lot more to redistribute it or he and the GOP are doomed.

    At least Trump-hate means a lot of the chattering class will suddenly notice how “meh” economic growth is a problem.

    Mike

    Like or Dislike: Thumb up 0 Thumb down 8

  7. michael reynolds says:

    I am shocked and disappointed to learn that 100 days of fwck-ups, flip-flops and fails has not magically improved the economy. Because, as we know, it was really easy. It was all so very easy: health care, ISIS, North Korea, trade, NATO, China, immigration. . . all you needed was a big, loud, obnoxious white male to thrust out his mighty chin, breathe testosterone and whiteness all over the place and it was all gonna be great. So much greatness.

    Trump accomplishments at the end of 100 days:

    1) No one anywhere believes a word the President of the United States says.
    2) Lots of terrified undocumented immigrants.
    3) Lots of pissed off allies.
    4) Putin laughing his ass off and exchanging high-fives with FSB agents.
    5) Xi rolling his eyes while state media openly ridicules our elected ignoramus.
    6) Germany now the moral center of the west. (I know! Germany!)
    7) Syrian air force mildly inconvenienced for 24 hours.
    8) Obamacare lives.
    9) So does NAFTA.
    10) Also the EXIM Bank.
    11) Coal country still moribund, rust belt still rusty.
    12) New standard set for corruption, eclipsing Harding and Grant administrations.
    13) Jared now President of Everything Too Complicated for the Toddler in Chief.
    14) Trump still considering reading a book. Possibly The Cat in the Hat.
    15) Goldman Sachs still in charge.
    16) Sean Spicer proves a man can live without a soul.
    17) Tax reform? Nah.
    18) Dirty air and water: coming soon!
    19) Russia. . . drip. . . drip. . . drip. . .
    20) America: Great Again.

    Like or Dislike: Thumb up 12 Thumb down 0

  8. Guarneri says:

    Why would you put the title you did only to get to the real issue as your third caveat? It will be six to nine months before Trump policies can really be said to have a material impact, even had some major legislative event been enacted.

    And I find myself in agreement with Ben Wolf. As a business owner with first hand experience and reader of stats it was quite apparent that the economy, growing tepidly at best for years, was staggering and volatile in late 2015 through 2016. .2% -.5% might be quite a lot closer to what Trump inherited.

    As for the Fed. I’ve stopped trying to understand what that crew is doing.

    Like or Dislike: Thumb up 0 Thumb down 10

  9. michael reynolds says:

    @MBunge:
    That is your best tortured rationale for Trump yet: until now we didn’t notice slow growth. And now, with a malicious idiot in charge, we do!

    Yay! MAGA!

    Like or Dislike: Thumb up 11 Thumb down 0

  10. michael reynolds says:

    @Guarneri:
    That’s very good, Drew, you’ve gone from anticipating explosive growth to inventing excuses for failure. Very, very good, Drew, it shows growth. Excusing failure is a full time job for you now. I’m excited to see you start on this new career.

    Like or Dislike: Thumb up 13 Thumb down 0

  11. Mr. Bluster says:
  12. Gustopher says:

    @gVOR08: Trump can certainly have had an effect on consumer spending — that’s a hopey/feely section of the economy where people cut back if they are worried about their future. And, indeed, growth there is slowing.

    A lot of Trump supporters feel very bullish about the economy, according to recent polls, but let’s remember who Trump’s supporters are: people who feel resentful that they’ve been left behind by a growing economy under Obama — they don’t have a lot of discretionary income, they aren’t going to drive economic growth.

    It’s the rest of America, prospering America, real America, where the people by and large didn’t support Trump, that drives the consumer demand. If Trump has failed to reassure them, and he has, spending is going to begin to drop.

    For instance, I have a twelve year old car. It runs fine, but it’s at an age where there are a few odd creaks opening doors, and each repair costs more than the car is worth. And the little keyfob thing you press to unlock the doors? That’s not working. I’ve been considering replacing it with a shiny new car, but if the economy contracts, maybe that $30-40,000 would be better in my savings. I’m waiting, to see what happens.

    Like or Dislike: Thumb up 3 Thumb down 0

  13. Guarneri says:

    @michael reynolds:

    I see you are in petulant little brat mode today. Try two shots of whiskey and a joint and maybe you will feel better. I don’t know what to do about your lack of rationality….

    Like or Dislike: Thumb up 0 Thumb down 14

  14. michael reynolds says:

    @Guarneri:

    You’re a loser, baby, and so is your idiot president.

    100 Days = 1 continuing resolution.

    MAGA!

    Like or Dislike: Thumb up 13 Thumb down 0

  15. Guarneri says:

    @michael reynolds:

    Now that’s really clever. I’d love to stay and chat, but the first tee is calling.

    BTW – one of the group we are staying with here at the resort worked in the Obama Admin. She wouldn’t share your, um, zeal for their competency. Just sayin.

    Like or Dislike: Thumb up 0 Thumb down 13

  16. Scott says:

    @Guarneri:

    It will be six to nine months before Trump policies can really be said to have a material impact

    Now I happen to agree with you; however, Trump has claimed all kinds of credit for things that were due to the Obama presidency. He can take responsibility for this also. Can’t have it both ways.

    Like or Dislike: Thumb up 8 Thumb down 0

  17. Scott says:

    I wonder how much does tourism play into the GDP. It is down much is due to Trump. Every year La Semana Santa is a big shopping experience for wealthy Mexicans coming to San Antonio. It was down this year because they don’t feel welcome. Thanks, Trump for hurting our economy.

    Like or Dislike: Thumb up 2 Thumb down 0

  18. Moosebreath says:

    @Scott:

    “however, Trump has claimed all kinds of credit for things that were due to the Obama presidency.”

    Especially on economic issues, such as job creation.

    Like or Dislike: Thumb up 4 Thumb down 0

  19. wr says:

    @michael reynolds: “Excusing failure is a full time job for you now.”

    Judging from the business acumen he’s shown here, I’d guess that excusing failure is only a sideline for Drew. Failure is his full-time job.

    Like or Dislike: Thumb up 5 Thumb down 0

  20. gVOR08 says:

    @MBunge:

    If Trump can’t generate better economic growth than Obama, he’d better do a whole lot more to redistribute it or he and the GOP are doomed.

    Republicans have never generated very good growth(1). They have been very successful at redistributing income, but upward, which somehow I don’t think is what you meant. Hasn’t doomed them yet.

    (1) Oft cited exception – Reagan boom – which was nothing more than a normal recovery from a very severe interest rate recession. A severe recession that Reagan deliberately caused and maintained. (You are aware that it’s easier to recover from interest rate recessions? All you have to do is drop interest rates. Balance sheet recessions, like 2008, are harder. Dropping rates to zero wasn’t enough in the absence of fiscal stimulus, which the GOPs refused to provide while the black guy was in off after they got over the initial panic that did produce the Stimulus.)

    Like or Dislike: Thumb up 3 Thumb down 0

  21. al-Alameda says:

    @MBunge:

    If Trump can’t generate better economic growth than Obama, he’d better do a whole lot more to redistribute it or he and the GOP are doomed.

    At least Trump-hate means a lot of the chattering class will suddenly notice how “meh” economic growth is a problem.

    Obama had nearly 7 consecutive years of average/good economic growth following the worst financial collapse in 80 years. Trump is nowhere near average with these figures.

    Like or Dislike: Thumb up 2 Thumb down 0

  22. EddieInCA says:

    Turns out a lot of Trump voters in rural America, or “real Muricans” are having problems finding seasonal workers to pick their crops.

    http://www.southwestfarmpress.com/farm-operations/immigration-issues-threaten-agricultures-profitability

    http://www.latimes.com/projects/la-fi-farms-immigration/

    https://www.nytimes.com/2017/02/09/us/california-farmers-backed-trump-but-now-fear-losing-field-workers.html

    Even at $16/hr, Americans won’t do the work. So much for the theory that if you cut off immigrants that Americans will pick up the slack when wages go up.

    Like or Dislike: Thumb up 2 Thumb down 0

  23. Matt says:

    @EddieInCA: Field work is tough stuff man. Your wear down your body in awful ways and 16 bucks an hour isn’t worth the long term pain and suffering.

    Like or Dislike: Thumb up 1 Thumb down 0