Revised GDP came out this morning for the first quarter of 2017, and the headline number was 1.2%, revised up from 0.7% in the preliminary report. That’s quarterly growth, annualized. But OTE’ers know I’m all about the
bass year-over-year trend, which came in at 2%. Same as last quarter. Same as the average growth rate since the expansion began in the second half of 2009.
I raise this only to point out that when folks say the Trump administration’s plug-in of 3% is off-trend, that’s what we mean. I heard his budget director argue that their “forecast” is based on the power of tax cuts, deregulation, and optimism. Neither tax cuts (which they themselves can’t coherently explain) nor deregulation has any such growth track record; re optimism, the more I hear from Mulvaney, Mnuchin, and Trump, the less optimistic I am. The real motivation for the 3% plug-in is to claim $2 trillion in imaginary revenue spun off by the faster growth assumption.
In a related story, the yr/yr growth rate of the core PCE price deflator is 1.7%, still below the Fed’s target. So, at least for now, we’re settled into a moderate trend of 2% growth with little in the way of inflationary pressure. That should definitely disabuse anyone of phony 3% budget forecasts and should also keep central bankers from tapping the brake much.