US Economy to Grow at 3.1 Percent in 2018, CBO Says

Tuesday, August 14, 2018

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The U.S. economy is projected to grow by 3.1 percent this year, as more government spending and tax cuts help propel an expansion, the Congressional Budget Office said.

But the robust run of growth may stall as early as next year, with the U.S. economy expected to slow down in 2019 and during the following decade once temporary government policies expire, according to the nonpartisan CBO’s report.

Economic growth will slow to 2.4 percent in 2019 and to 1.7 percent in 2020, staying at about that level over the next decade, the CBO projected.

If the CBO’s numbers prove correct, U.S. economic growth will have jumped from 2.6 percent in 2017 to 3.1 percent in 2018. Those numbers mark a significant improvement over the aftermath of the Great Recession, which saw an annual growth rate of around a tepid 2.2 percent.

“There is an acceleration of growth that is significant,” said Allen Sinai, chief economist and strategist at Decision Economics. “A year or so ago, 3.1 percent in annual growth did not look doable. But it has happened.”

The CBO’s report suggests the economy is being temporarily juiced, in part because a large government spending package passed this spring and the Republican tax law passed last fall. The law slashed the corporate tax rate and income tax rates at all levels, with the largest breaks for the highest-paid workers. The income tax cuts are set to expire within a decade, but Republicans say a future Congress will extend them.

President Trump celebrated projections that the economy grew by about 4.2 percent this spring, a number expected to be artificially high because of a one-time surge in agriculture exports due to concerns the administration would impose tariffs on those products.

“You’re going through a nice sugar rush provided by the federal stimulus, which is going to slowly come back down next year,” said Satyam Panday, senior economist at S&P Global. “We’re seeing a near-term positive effect, but these policies are not going to have a big impact on the longer-run growth.”

The CBO’s analysis is similar to that of a number of independent firms and Wall Street analysts.

Critics say the economy is already failing to deliver for many American workers, noting inflation is rising faster than wages at a time of purported economic strength. The wages of most American workers have barely budged this year, suggesting the economy’s benefits are overwhelmingly flowing to the top.

The CBO report offers some optimism for employees, projecting fast growth of an index that measures workers' wages and benefits. “The increased demand for labor and competition for workers boost the growth of hourly labor compensation,” the CBO said.

But other analysts are skeptical that wages are about to take off. The labor market already appears strong, yet wages have remained stubbornly low. The government will have to find some other way to intervene in the market for wage growth to materialize, these analysts say.

“The wage models used to produce gains for workers are not working,” said Joseph Brusuelas, chiefeconomist at RSM, a tax and consulting firm. “The wage growth individuals want to see [is] just not going to happen.”

Source: The Washington Post

Category: Economic Development, Workforce Development