aside The US Economic Numbers Will Be Republicans’ Tax Cuts Report Card Before Nov. 2018

THIS IS HOW REPUBLICANS MEASURE ECONOMIC GROWTH

In late December 2017, President Donald J. Trump and his sycophant republicans in the US Congress and the White House managed to pass through their tax cuts bill on a strictly partisan basis, which largely favors the very wealthy and corporations. The republicans are hoping that their fantasy predictions of greater economic growth will lift up all boats which is called “trickle down economics.”

I am realistically expecting dismal economic numbers, similar to what the State of Kansas has been experiencing ever since their officials put this supply side/ trickle down economic’s theory into practice.

Editorial cartoon on tax cuts

The numbers compiled by the BLS (Bureau of Labor Statistics) will become important after the 3rd quarter of 2018 because this will be the report card to measure the effect of the 2017 republican tax cuts bill on the US economy?

Below, I have printed excerpts from three sources spouting off economic predictions for the year 2018. None portray the rosy scenario that has been described by numerous US senators regarding the economic benefits that the US economy will reap in 2018 because of their 2017 tax cuts bill.

David Cohen, Asheville (N.C.) Citizen-Times

 

Here is the US economic report card for 2017...

As of November 2017 the US unemployment rate (U3) is at 4.1%; the U6 Unemployment Rate unemployment rate as of December 2017 is 8.10. It looks like the GDP (Gross Domestic Growth) will end up being 2.2% for the year 2017.  (There was a significant GDP number spike in the 3rd quarter of 2017 of 3.0%) The US added 2.1 million jobs in 2017. As of December 2017,  the labor-force participation rate was still at 62.7 percent which is still well below historical norms.  The US 2017’s overall wage growth ticked up to a whopping 2.5 percent.

The question is how will these economic metrics look like after the 3rd quarter in 2018? I am convinced that the republican’s rosy economic predictions will be looking a lot grayer, just in time for the 2018 mid-term elections. I am basing my prediction on sources like Kiplinger, the Atlantic, and the November 2017 Focus Economics Report.

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Republicans’ vision of US economics for 2018Here is what 12/22/17 Kiplinger report is predicting:

“Tax cuts for both businesses and individuals should lift the economy in 2018, but probably only moderately. Improving business profitability is likely to boost the stock market but may not lead to greater business investment. Greater wealth will raise consumer spending, but the increase will be limited until wage growth improves. Tax cuts for individuals will help somewhat, but many of these will benefit wealthier taxpayers, who tend to save more of their gains.”

“Inflation-adjusted GDP should grow 2.6% in 2018, after 2017’s 2.2% full-year pace. Rising household wealth and income, further job gains (albeit at a reduced rate) and credit utilization are underpinning consumer spending. Expect motor-vehicle sales to slow significantly.”

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As per a January 5, 2018 Atlantic report, “2.11 million jobs were added in all of 2017—a performance that will be hard to repeat in 2018.”

“As the economy has steadily improved, adding jobs for one of the longest consecutive streaks in modern history, many experts have wondering when the impressive growth would stall. With the unemployment rate at its lowest levels in 18 years, and job growth already slowing from 2016 to 2017, this year’s growth could be significantly more lackluster. And while unemployment has ticked down significantly, there are still tons of missing workers: December’s report showed that the labor-force participation rate was still at 62.7 percent, still well below historical norms.”

“December’s performance fell short of economists’ expectations (at 148,000 jobs vs. the expected number at 190,000 ). December’s performance marks one of the few months in 2017 that job growth didn’t top 200,000. In 2018, surpassing the 2 million mark isn’t a sure thing, and months that fall short of the 200,000 mark will likely be more common.”

Editorial cartoon on Republican tax plan and the national debt

“It’s expected that job growth will wane after several years of brisk growth. While 2018 may not be able to deliver the impressive job-growth figures that Americans have become used to, there are still important areas of the economy that need to, improve. In December, wages ticked up by 9 cents, bringing 2017’s overall wage growth to 2.5 percent. While that’s better than previous years when wages were flat, earnings haven’t been improving at the rate that most economists would expect in an otherwise healthy economy. And earnings growth is what makes a difference to Americans in their day-to-day lives.”

Editorial cartoon on the Republican Party and tax cuts and the middle class

US Tax reform takes center stage amid improving economic dynamics (Source: November 2017 Focus Economics Report)

“The economy showed outstanding resilience in the third quarter despite hurricane-induced disruptions, with GDP growth coming in at 3.0%, well above market expectations. Although data has been noisy in recent months due to weather-related distortions, the underlying strength of the economy seems largely intact heading into Q4. Core retail and vehicle sales for October suggest that consumer spending remained healthy at the outset of the fourth quarter, while October employment data showed a rebound in job creation and a further decline in the unemployment rate, which hit a 17-year low.

The tax reform will shore up non-residential investment and keep business sentiment buoyant next year (2018), while a tighter labor market and firmer real estate prices will continue to boost consumers’ purchasing power. Our panel forecasts growth of 2.4% in 2018, which is unchanged from last month’s estimate. In 2019, growth is seen moderating slightly to 2.0%.

Editorial cartoon on minimum wage and businesses

The unemployment numbers

Most economists look past the official employment rate (also know as the “U-3” number) to metrics like the U6 rates that provide more nuanced views regarding employment. As unemployment rates have returned to more typical pre-recession levels, economists are now also looking at other job indicators such as labor participation and wages.

For instance, the U-3 rate shows the “total unemployed, as a percent of the civilian labor force,” but doesn’t include a number of employment situations.

A broader figure is the U-6 rate, which is used by many economists as a more accurate portrayal of the employment situation. As per a 5/6/16 CNBC report by Nick Wells, “The U-6 rate is defined as all unemployed as well as “persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the labor force.” That means the unemployed, the underemployed and the discouraged.”

As per a Macrotrends report, “the U6 Unemployment Rate as of December 2017 is 8.10.”

“This interactive chart compares three different measures of unemployment. U3 is the official unemployment rate. U5 includes discouraged workers and all other marginally attached workers. U6 adds on those workers who are part-time purely for economic reasons.”   Here is a link to the site: U6 Unemployment Rate | MacroTrends

Gary Varvel, The Indianapolis Star

What is on the unemployment numbers report? (Source:March 27, 2017 Thought.com report by Jodi Beggs)

“Most data regarding unemployment in the US is collected and reported by the Bureau of Labor Statistics. The BLS divides unemployment into six categories (known as U1 through U6), but these categories don’t line up directly with the way that economists categorize unemployment. U1 through U6 are defined as follows:”

  • U1 = Percentage of labor force unemployed 15 weeks or longer
  • U2 = Percentage of labor force who lost jobs or completed temporary work
  • U3 = Percentage of labor force who are without jobs and have looked for work in the last four weeks (note that this is the officially reported unemployment rate)
  • U4 = U3 plus the percent of the labor force that counts as “discouraged workers,” i.e. people who would like to work but have stopped looking because they are convinced that they can’t find jobs
  • U5 = U4 plus the percent of the labor force that count as “marginally attached” or “loosely attached” workers, i.e. people who would theoretically like to work but haven’t looked for work within the past four weeks
  • U6 = U5 plus the percent of the labor force that counts as “underemployed,” i.e. part-time workers who would like to work more but can’t find full-time jobs

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Technically speaking, the statistics for U4 through U6 are calculated by adding discouraged workers and marginally attached workers into the labor force as appropriate. (See BLS  definitions ) (Underemployed workers are always counted in the labor force.) In addition, the BLS defines discouraged workers as a subset of marginally attached workers but is careful not to double count them in the statistics.

While U3 is the main officially reported figure, looking at all of the measures together can provide a broader and more nuanced view of what is happening in the labor market.

Editorial cartoon on President Barack Obama and U.S. economy

Productivity (Source FT For 1st 3 Quarters 2017)

A measure of how much economic output is generated for a unit of input, rising productivity is seen as one of the only ways to improve living standards, at a time when advanced and some emerging economies are seeing ageing populations and a rapidly increasing retirement rate.

Growth in the US though, along with many other western economies, has been alarmingly slow since the financial crisis.

Inflation (Source FT 2017))

The Federal Reserve looks closely at its inflation target of 2 per cent, using it as a metric policymakers must feel ‘reasonably confident’ about before raising interest rates.

Consumer inflation in November
2.2%
Core inflation in November
1.5%
Mike Thompson, Detroit Free Press

Interest rates (Source FT 2017)

A stronger economy has given the Federal Reserve cover this year to accelerate its pace of interest rate increases. Prior to 2017, the Fed had increased rates only twice over the course of two years.

Federal funds target rate
1.5%
Average 30-yr prime mortgage rate
3.98%

Consumers (Source FT 2017)

As the labour market has strengthened, so has US consumer spending. Wage growth has remained subdued, however. There are few signs of runaway spending growth, with consumers staying in a cautious mood. 

This blog was last updated on 1/8/18.

2 comments

  1. Gronda, much of my concerns about this ill-devised tax law will occur longer term. Our debt is scheduled to grow by $10 trillion before the tax law, which will add $1.5 trillion more. The impact may not be felt as much this year, but the stock market has priced in the tax law change on euphoria, so if numbers do go south, they may fall fall faster.

    You will see a lot of companies post a negative fourth quarter result as the revalue their Deferred Tax Credits with the lesser future tax rate. But, the real tests will be in the quarterly results announced throughout the year.

    In addition to the debt concerns, this law was sold to fix an economy that was not broken – 103 consecutive months of economic growth is the third, soon to be second longest growth period coupled with the seventh year in a row of 2 million plus added jobs. The stock market more than doubled under Obama and continued to climb. I personally feel it cannot climb much higher (this should not be construed as investment advice).

    The other concern is the dilutive measures such as the retrenching on global trade, making it less inviting to travel to the US and the making the ACA less attractive. Keith

    • Dear Keith,

      You are so right. This was not the time to have created a bill that adds to the deficit to the tune of at least $1 trillion dollars. There was room for tax reform that didn’t add to the deficit. Now the republicans and democrats will be going on a spending spree that we don’t have the monies for, thanks to the construct of this 2017 partisan republicans’ tax cuts bill.

      Hugs, Gronda

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