Donald Trump marked his first 100 days in office at the end of April (29th if anyone is counting). Usually, a Republican president and Republican control of both Houses would be cheered by the business community as harbingers of good economic times ahead, but Mr Trump is, to say the least, somewhat of a Maverick. In addition to promising to make “America great again”, he plans to boost GDP to 4%, create vast numbers of new jobs and slash and reform taxation. This would be more likely if the Republican Party was united behind their president, but the recent healthcare reform debacle shows it not to be the case.
It is debatable to what extent the first quarter economic performance can be attributed to the policies and personality of a president that was not yet in office when it began, but Q1 2017 has returned the weakest growth that the US economy has produced since Q1 2014. According to the first official estimate, Q1 (annualised) growth came in at 0.7% down strongly from the Q4 2016 level of 2.1% and significantly weaker than expectations of 1.1% growth. The average growth achieved by the USA between 1947 and 2017 comes in at 3.21% (range from -10% Q1 1958 to +16.9% Q1 1950).
The weak growth data has been ascribed to stagnant consumer spending. Domestic consumption accounts for 70% of all US output, so domestic (consumer) spending is an important factor. It will take time for any fiscal stimulus package delivered by the Trump administration to work with most analysts expecting it to take twelve months to bed in and produce an effect. The headline policy of Trump’s first budget is a plan to slash corporation tax from 35 to 15% which, he hopes, will stimulate the US economy by giving the beneficiaries more cash to invest in it. Critics are quick to point out that the move will produce an immediate, enormous black hole in US tax receipts which would only be filled if the stimulus measure works spectacularly well. If not, the move is likely to add trillions of Dollars to the US debt mountain as the government has to borrow to cover expenditure that would otherwise have been met from corporation taxes (or drastically cut expenditure, of course).