US: Trump team predicts an economic boom contradicting most analysts

Garima Bora

US: Trump team predicts an economic boom contradicting most analysts

18 Aug 2018: US: Trump team predicts an economic boom contradicting most analysts

Is the latest pickup in the US economic growth destined to slow in the years ahead as most analysts say? Or, as the Trump administration insists, is the economy on the cusp of an explosive boom that will reward Americans and defy those expectations?

On Thursday, President Donald Trump's chief economic adviser, Larry Kudlow, made his case for the boom.

Here's more on it.

Initial stages: Kudlow says economic boom is in its initial stages

Calling mainstream predictions pure nonsense, Larry Kudlow declared that the expansion, already the second-longest on record, is merely in its early innings.

"The single biggest event, be it political or otherwise, this year is an economic boom that most people thought would be impossible to generate," Kudlow said at a Cabinet meeting.

"I'm saying this, we are just in the early stages," he said.

Fact: Economic growth has been steady since Trump took office

The US economy grew for seven straight years under President Barack Obama before Trump took office last year. Since then, it stayed steady, and the job market remained strong. The stock market is also nearing an all-time high, a sign of confidence about corporate profits.

Slow rise: Economic growth picked up this year

The US economic growth has picked up this year, having reached a four-year high of 4.1% at an annual rate last quarter. Job gains are also running at a slightly faster pace than in 2017.

Most analysts see the economy growing a solid 3% this year, a potential political asset for Trump and the Republican Party, especially with the approach of November's congressional elections.

Skeptical: Economists don't agree with Kudlow's assertion

However, it's hard to find any outside mainstream economists who would agree with Kudlow's assertion that the Trump administration can accelerate or even sustain that growth rate.

Analysts generally expect that the benefits from Trump's tax cuts and an additional $300 billion in government spending that he signed into law in February will gradually slow along with economic growth.

Fact: Trade war with other countries can also limit growth: Analysts

Most analysts also say the US Federal Reserve System's continuing interest rate hikes, combined with the trade conflicts Trump has sparked with most of America's trading partners, could also limit growth.

Sugar rush: Economists predict economic growth rate to slip 2.5% in 2019

"Economists are incredibly hopeful that the WH is right," said Carl Tannenbaum, Chief Economist of Northern Trust.

"Unfortunately, most economic analysis and past historical patterns suggest... we're in the middle of a sugar rush that'll wear off," he said.

Economists have generally forecast that the pace of annual economic growth will slip to about 2.5% in 2019 and then less in the subsequent years.

Trends: Tannenbaum explains trends that act as speed limit for economy

Tannenbaum noted that the economy faces two trends that act as a speed limit.

First, the economy can grow only as fast as its workforce size. Yet the baby-boom generation is retiring, especially after the administration wants to limit immigration.

Second is the worker productivity growth, the number of output per hour worked, which fell from 2.7% average to 1.3% since the Great Recession.

Not hopeful: Tax-cuts boosting economic growth have now swollen budget deficit: Tannenbaum

Even if the economy did accelerate unexpectedly, the Fed would then likely raise rates faster to avert a pickup in inflation and cause the expansion to slow.

In addition, the tax cuts and government spending that are helping boost economic growth for now have swollen the budget deficit, which is expected to surpass $1 trillion annually in 2020, a level Tannenbaum calls absolutely frightening.