The US Economy Will Grow Significantly Slower This Year And In 2020

 “It’s true that U.S. economic growth got a bump for two-quarters last year, and Trumpists are still pretending to believe that we’ll have great growth for a decade. But at this point, last year’s growth is looking like a brief and rapidly fading sugar high.” (Paul Krugman, NTY, April 8, 2019)

The U.S. economy fell short of the Trump administration’s 3% growth target in 2018 despite the boost it received from the $1.5 trillion in tax cuts and hefty government spending increases, particularly for military hardware.  

Real GDP expanded 2.9% in all of 2018, though if one calculated growth from the fourth quarter of 2017 to the fourth quarter of 2018, the economy reached Trump’s 3% target.

However, the third and final estimate for the US economy in the fourth quarter of last year revised annual growth in the quarter down to 2.2% from an earlier estimate of 2.6%. In other words, the US economy was quite strong last year, but there was perceptible slowing towards year’s end.  

Unfortunately, experience suggests that downward revisions in GDP are never a positive and often signal slower growth ahead.

Indeed, slower US economic growth is generally expected, and Fed officials also recently lowered their median projection to only 2.1% growth for this year.

At its recent meeting, the Fed left its benchmark interest rate, the federal funds rate, at 2.5% and indicated that it did not think growth and inflation were strong enough to warrant another rate increase.

 In other words, the Fed currently foresees no interest rate increases this year, even though in a previous meeting in December the Fed projected two rate increases this year.

Complicating any discussion of the economic outlook is the widening federal budget deficit, which hit a monthly record in February, and which will soon top $1 trillion annually.

Despite relatively strong economic growth last year the Administration’s budget deficit soared because of the large spending increases and the reduced tax revenues stemming from the tax cuts.

The American economy expanded 2.9% in 2018 and the outlook for US growth this year is only 2.1%. Assuming nothing precipitous happens, US economic growth will likely remain just over 2% once again in 2020.