LDN - Business

Trump's economy 'a little under' 3 percent growth goal: Fed

[February 23, 2019] By Howard Schneider

WASHINGTON (Reuters) - The Trump administration will fall "a little under" its target of 3 percent annual growth of gross domestic product for 2018, the Federal Reserve said Friday in a report that offers an economic scorecard of sorts for the first full year of President Donald Trump's term.

The verdict: Mixed, and possibly going in the wrong direction. By year's end, the impact of tax cuts and other policies was waning, trade was detracting from growth and the federal deficit was wider.

On the upside, employment growth remained strong.

Though growth for the year was "solid," the Fed said, gross domestic product "rose a little bit under 3 percent for the year as a whole," shy of the pace White House officials have set as their touchstone for the success of the president's policies.

Earlier this month White House economic adviser Larry Kudlow said growth would prove to be 3 percent in 2018 and at least that much for 2019 - a forecast the Fed also does not share.

The Fed said 2018 would prove "a noticeable pickup" from recent years, but outlined an array of headwinds, including a drop in business and consumer spending at year's end, that could carry over into 2019.

FILLING THE VOID

The Fed's estimate of last year's growth fills a void left by the recent government shutdown, which delayed publication of the first estimates for fourth-quarter and full-year 2018 growth by the Bureau of Economic Analysis.

That official GDP figure is now due next week.

The Fed, however, in the meantime had to produce a full report to Congress under a law requiring the central bank's chairman to appear on Capitol Hill twice a year to update lawmakers.

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President Donald Trump gestures with Jerome Powell, his nominee to become chairman of the U.S. Federal Reserve at the White House in Washington, U.S., November 2, 2017. REUTERS/Carlos Barria/File Photo

That appearance is next week, and in an accompanying report, released in advance, the Fed used its own sophisticated models to provide a bottom line for 2018.

Trump took office in January 2017, and by the end of that year had put a full suite of economic policies into play, including a $1.5 trillion tax cut, increased government spending, and an effort to reorder the global trading system in the United States' favor.

White House officials said that would unleash spending and investment, fix the U.S. trade deficit, and improve the government's balance sheet by yielding enough extra revenue to offset the tax cut.

And some that was true at first, according to the Fed, though the impetus seems to be weakening.

The strength of the labor market has been undeniable, with around 220,000 jobs added monthly on average in the last half of the year, sidelined workers coming back on the job, and falling unemployment rates "for all major demographic groups."

But by year's end consumers were pulling back, and a bump in business investment early in the year had "moderated," while corporate spending plans, business confidence, and lower expected profits mean an even weaker investment climate ahead.

International trade, after a "strong performance" that boosted GDP early in the year, may end up as a net drag on the economy in 2018 after exports faltered late in the year and "growth in real imports seems to have picked up" despite the imposition of various tariffs.

As for the federal deficit, it widened to 3.75 percent of GDP in fiscal year 2018, which ended in October, compared to 3.4 percent the year before.

(Reporting by Howard Schneider; Editing by Andrea Ricci))

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