Will Tax Cuts Keep Us At 3% GDP?

Thursday, December 21, 2017

Ahead of Thursday’s opening bell this morning, the third and final read on 3rd quarter 2017 Gross Domestic Product (GDP) was released. The good news: we keep the 3-handle for back-to-back quarters for the first time in a couple years. The bad news (and it’s not that bad): the 3.2% tally is a tenth less than the previous read of 3.3%.

Breaking it down a bit, Consumption brought in 2.2% in Q3, a tenth lower than the previous read, as did “core” GDP quarter over quarter reaching 1.3%. Prices were in-line sequentially at 2.1%. Just some trimming around the edges, and the 3.2% headline clearly illustrates growth in the U.S. economy in the recent past.

Looking forward toward Q4 GDP estimates, the median read currently sits at 2.6% — roughly what calendar 2017 would shape up to be overall if this were to be accurate. Yet the massive tax cut bill just passed through Congress may pull growth from future quarters as consumers and corporate CEOs gain confidence in economic growth to put capital to work now, and get the jump on competition.

Equipment and spending have already begun to add to GDP, and a gigantic corporate cash windfall from slashed tax rates next year may well add even more. For years, economic growth had been stymied by obstruction and inaction from Congress, so some pent-up business investment may be a natural occurrence already; now with fresh tax reduction reviving corporate interests, it may stand to reason this investment may spike — and take future GDP reads up with it.

We even hear reports that some companies, like AT&T (NYSE:T) are passing along $1000 bonuses to their employees. Wells Fargo (NYSE:WFC) and Fifth Third Bank (NASDAQ:FITB) have pledged to raise their minimum wage to $15 an hour following the tax passage. Boeing (NYSE:BA) has announced a commitment of $300 million in worker training. These measures would provide a direct benefit to the domestic workforce, at least in some places, regardless whether or not the tax bill was really created to assist middle-income Americans as advertised or not.

There is still the matter of reaching a deal in Congress to avoid a government shutdown to end this already active week on Capitol Hill. There is almost nothing more conceivably dampening of the good spirits felt among GOP congresspeople than the realization the U.S. government is non-operational. This morning, a temporary extension to January 19 is being worked up and votes tallied — this would include measures important to Democrats like Children’s Health Insurance Plan (CHIP) and Deferred Action for Childhood Arrivals (DACA) — that would require 218 total votes in the House, and 8 Democrats joining all GOP senators.

Mark Vickery
Senior Editor

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