Trump boom? Only on Wall Street, not in the real America

On Friday, we got our first look at how the overall US economy has been doing, with the release of Gross Domestic Produce (GDP) in the 2nd Quarter of 2017. And on the top level, the numbers were pretty good.

Real gross domestic product increased at an annual rate of 2.6 percent in the second quarter of 2017 (table 1), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 1.2 percent (revised).

The acceleration in real GDP growth in the second quarter reflected a smaller decrease in private inventory investment, an acceleration in PCE, and an upturn in federal government spending. These movements were partly offset by a downturn in residential fixed investment and decelerations in exports and in nonresidential fixed investment.

That 2.6% were largely in line with expectations, and were a welcome acceleration from the sub-2% growth that had been the norm over the last 2 years. But on the flip side, it was the 2nd-lowest 2nd quarter figure for growth in the last 4 years, and really wasn't much different than 1st Quarter's tepid growth, after you take out the change in inventories.



And based on other information that has recently come out, this 2.6% growth doesn't seem to be harbinger of greater growth in the coming years. Also noteworthy in Friday's GDP report was that the BEA revised all quarterly and annual GDP between the start of 2014 and the 1st Quarter of 2017. This meant that 1st Quarter GDP growth was reduced from 1.4% to 1.2%, and previous quarters also had small changes.

For the first quarter of 2014 through the first quarter of 2017, the average revision (without regard to sign) in the percent change in real GDP was 0.4 percentage point. The revisions did not change the direction of the change in real GDP (increase or decrease) for any of the quarters.

·For the period of economic expansion from the second quarter of 2009 to the first quarter of 2017, real GDP increased at an average annual rate of 2.1 percent, the same as previously published.

In addition, back on July 23, the chaos and general idiocy in GOP-run DC led the International Monetary Fund to reduce its estimates of growth in the real economy.

The IMF on Sunday lowered its economic growth forecasts for the United States to 2.1% for this year and the next, down from the 2.3% for 2017 and 2.5% for 2018 that it had predicted in April.

That's a far cry from the 4% growth President Trump promised on the campaign trail, and significantly lower than the 3% growth he has targeted since assuming office. The global financial institution cited the "uncertainty" over the Trump administration's policies as the main reason for the downgrade.

And that IMF downgrade of growth was before attempts to repeal Obamacare imploded in Congress last week. Ruh roh. While a drop in projected growth of 0.2% this year and 0.4% next year doesn’t sound like much, but when you’re talking about an economy that has a total GDP of $19.2 trillion in today’s dollars, that’s still a drop in projected activity of $380 billion for this year, and close to $800 billion in 2018. Combine those updated figures with the recent outlook from the IMF, and it sounds like the US economy is going to bounce along at the same moderate growth level that we’ve become accustomed to (which makes me wonder why the stock market keeps climbing in this ridiculous Trump rally, with the S&P going up nearly 2% in July, and is up almost 15.5% since Election Day).

It is not difficult to imagine some of those reduced estimates of activity affecting things in Wisconsin, which would reduce the projected tax revenues in an already-tight 2017-19 Wisconsin budget. Let’s go back to the Legislative Fiscal Bureau’s rosy revenue estimates from January, which forecast 2.3% real GDP growth for this year, and 2.6% growth in 2018. The LFB said at the time that they were counting on the then-new Trump Administration to pass tax cuts and put in a $250 billion infrastructure package.

That clearly hasn’t happened, and the LFB included a forecast that explained what may occur if that stimulus didn’t happen from DC.

…Under the pessimistic scenario, the January, 2017, forecast assigns a 20% probability of a two-quarter economic contraction in the first half of 2018 due to strained trade relations with China and Mexico. U.S. exports decline more than imports, and economic conditions worsen across the world. The U.S. dollar increases in value, further undermining export competitiveness. U.S. businesses react by postponing capital investments. The stock market declines markedly, along with consumer confidence.

Meanwhile, productivity continues to decline, and thus modest demand-side growth causes inflationary pressure. OPEC oil production cuts (which are not offset by increased domestic production) and inflation prompts the Federal Reserve to raise interest rates, further constricting growth. Under this scenario, disagreements between the new Trump administration and Congress, as well as a federal government hiring freeze, prevent stimulus spending. As a result, consumer and business confidence deteriorates, leading to declines in business investment, meager growth in consumer spending, and a fall in housing starts. Real GDP growth is estimated at 1.3% in 2017, -1.1% in 2018, and 1.9% in 2019. These growth rates are lower than the baseline forecast by 1.0% in 2017, 3.7% in 2018, and 0.4% in 2019.

The economic factors in that “pessimistic scenario” haven’t hit yet, as consumer confidence and the stock market remain high and business spending has been maintained (in fact, non-residential business spending is at the highest growth levels in 3 years, according to the most recent GDP report).

But the political concerns? It’s that scenario and then some, as the uncertainty regarding the future of health care (and possible Trump/GOP sabotage of the current system) will likely lead to economic problems and a drop in consumer spending in other sectors. 6 months in and we’ve barely heard a peep about an infrastructure package, and Trump’s austerity-driven budget has been considered DOA in Congress for 2 months.

Add in a potential crisis involving the end of the fiscal year and the need to raise the debt ceiling over the next 2-3 months, and you can see where the possibility of Trumpian and/or other GOP idiocy in DC leading to a slowdown and/or recession in the very near future. That’s not even counting the possibility that Commander Cuckoo Bananas might cause some kind of geopolitical crisis and/or being kicked out of office in the near future.

Stay buckled in, folks.