(Marketwatch) Cruel little kids in playgrounds will tell you that close only counts in horseshoes and hand grenades, but that’s not really true — close is pretty good in economics too. President Donald Trump came close to delivering 3% economic growth in the first year of his big tax cut — the preliminary numbers on Thursday put growth at 2.9%.
So even Trump skeptics should give the man a nod. But Trump enthusiasts — there are some — should understand that this is likely as good as it gets.
Economically, the outlook is for growth to move back toward the heart of the 2% to 2.5% growth channel that has been common since 2006. Politically, the outlook if that happens isn’t kind to the president.
“Reasons to worry: Gas prices no longer falling, Tax cut boost over, [capital spending] orders dropping ... slow global growth hitting exports,” Pantheon Macroeconomics chief economist Ian Shepherdson tweeted. “Reasons not to worry: Housing not so bad. Net: It’s not great.”
Consumer spending rose a solid 2.6% for the year — and Trump can take a little credit for that, since the tax cut did help drive real after-tax income higher. But he can’t take a ton, if you’re being honest — consumption rose 2.5% in 2017, before the tax cut, and 2.7% in 2016, a year when even Trump didn’t expect to win the White House.
Investment spending was up and down throughout the year, but the overall verdict was pretty decent. Businesses invested a decent amount in equipment, and a disappointing amount in structures late in the year. Rising oil prices helped drive drilling investment early in the year, and taketh away from structures investment in the second half. Trump didn’t make either move happen, at least not on purpose.
The star of investment spending right now is actually intellectual property spending, a category where software investment supplies about half the dough. IP investment as a whole rose at a 13% annual rate in the fourth quarter, letting a very small (and volatile) category in a $20 trillion economy provide 20% of its growth.
That said, pretty much no industry has been as Trump-skeptical as the technology business. Trump fans in business are concentrated in small business, as very high ratings in small-business confidence surveys since 2016 attest. The people spending the money are from places where he mostly got whomped.
The biggest gain for the year was in exports — and, given ongoing trade battles, that's against the wind. The surge was early in the year — partly before Trump escalated rhetoric about tariffs on Chinese goods, and partly during a second-quarter surge where offshore customers may have stocked up on U.S. goods in anticipation of interruptions that arrived later.
Coming into 2019, the news is shaky on several fronts.
Factory orders point to a rough few months, at least for manufacturing. Trade tussles are likely a factor there. Exports rebounded late in the year after a nearly 5% annualized decline in the third quarter, but slowing growth in China and fears of a European recession suggest that the normal going forward will be uninspiring.
And most economists have said all year that the tax cuts would only boost consumer spending in their first year, with the impact fading out by late 2019.
This is not an awful outcome, economically. If growth moves back down toward the range where it has been since 2009, and no more, that’s not a big problem. After all, 10 years of this has coincided with a steady march toward full employment and a booming stock market.
