U.S. growth expectations may be too rosy as analysts overestimate how much tax cuts will boost the economy, according to an economic letter from the Federal Reserve Bank of San Francisco.
Analysts have forecast large increases in economic growth over the next two- to three-years following $1.5 trillion in corporate and personal tax cuts over the next decade. But recent research finds that such fiscal stimulus is less effective when the economy is expanding compared with its benefits when enacted during a recession.
“This suggests these forecasts may be overly optimistic,” economists Tim Mahedy and Daniel Wilson wrote in their note published Monday on the San Francisco Fed’s website. “The predominant research finding is that the fiscal multiplier is smaller during expansions than during recessions.” Wilson is vice president in the economic research department of the San Francisco Fed. Mahedy is a former associate economist in the department who recently joined Bloomberg Economics….
While the Congressional Budget Office in April upgraded its 2018 estimate for U.S. gross domestic product by 1.3 percentage points to 3.3 percent, the San Francisco note says marginal consumption and spending multiplier research suggest a smaller effect, ranging from no effect at all to 1 percentage point.
You mean cutting taxes after the Obama Recovery had gotten the US back near full employment, in a time when corporations were already making record profits…that wasn’t going to help things much? NOOOOOO!!!!
In another note from the Fed, even some of the increased growth in the private sector we might see in the 2nd quarter will likely be based on higher consumer debt. Which means it’s not the “good increase” in spending that might result from more money in people’s wallets
Americans increased their borrowing in May at the fastest pace in a year and a half, boosted by a big increase in credit card borrowing.That sounds even worse when you consider that inflation-adjusted consumer spending was flat for May. If both are true, and more people are breaking out the credit card as a method to pay for their tepid amount of purchases, then take-home pay likely isn’t going up. What happens to consumer spending when the credit card bills come due and the take-home pay still lags?
Consumer debt rose $24.5 billion in May after an increase of $10 billion in April, the Federal Reserve reported Monday. It was the biggest monthly increase since a rise of $24.8 billion in November 2016.
The category that includes credit cards climbed $16.3 billion in May after increasing by $5 billion in April….
The hefty gain in consumer credit in May pushed borrowing to a total $3.90 trillion on a seasonally-adjusted basis. The Fed's monthly borrowing report does not include mortgages or any other debt secured by real estate, such as home equity lines of credit.
Lots of things going on right now that lead me to believe we’re about one bad event from having our economy turn down, and it may come sooner than a lot of people think. If this economic situation is as “good as it gets” when it comes to the number of people working, wages still aren't going up, which means we have nothing else to sustain our debt-ridden ways. YIKES!