US: A Recipe for Continued Moderate Growth

Disappointment over Trump agenda


President Trump entered the White House with a pro-growth agenda of tax cuts, health care reform, increased spending, trade reform, and regulatory relief. As a result equity prices soared after the elections and well into the first months of this year on optimism that Trump’s pro-growth policies will be implemented. Instead, much of Trump’s agenda has been blocked in Congress by both Democrats and groups of Republicans. Perhaps most importantly for fiscal stimulus, major tax reform is now at risk for implementation in 2018. Other major initiatives have also stalled, although spending will increase in FY 2018. Equity prices have continued to increase on optimism that the agenda will succeed. However bond market prices have now become skeptical, and as a result, long-term yields and the yield spread have fallen to pre-election levels, reflecting lowered expectations for growth.


While (oil-related) investment spending is rebounding, the consumer remains muted despite professing great confidence. Real consumption growth will likely be somewhat lower this year than in 2016 since uncertainty in Washington is increasing, real disposable income growth is dampened by the pickup in inflation, and consumer credit growth remains well below average.


Thus, we expect GDP growth to be only 2.2% in 2017 and 2.3% in 2018, about the average rate during this recovery which has been slow historically