1/9 A tweetstorm on reading q1 growth slowdown & whether tax cut is working. Deceleration from q4 (2.9% saar) to q1 (2.3%) distorted by hurricane-driven q4 spike in car sales & home repairs. Excluding motor vehicles and residential investment, growth went from 2% to 2.7%.
2/9 Year/year growth, which eliminates seasonality problems, rose to 2.9% - best since mid-2015. Excluding volatile net exports, inventories, and government, final sales to private domestic purchasers grew 3% y/y, still decent.
3/9 Does Trump get credit for getting close to 3% target? Complicated question, but probably not yet. We know a lot of slowdown in 2016 and pickup in 2017 was due to collapse and rebound in oil prices & drilling. Expect some tapering in coming year.
4/9 Tax cut's full expensing for equipment, retroactive to Sept. 27, certainly propelled some of the equipment investment growth of 11.6% in q4 and 4.7% in q1…
5/9 But we don't know how much of this was just timing (pulling forward or pushing back already planned investment). There should be some persistent tax-driven pickup in investment but will take time and even then hard to disentangle from cyclical demand.
6/9 Disposable personal income accelerated to 3.4% saar in q1 (nominal), and tax cut contributed some of that. Suggests consumer spending outlook is robust. However …
7/9 The tax cut happened only once so both the income and spending boost are likely transitory. Consensus is they last 1-2 years. Lasting boost to income & spending requires higher productivity & higher real wages.
8/9 One good sign: employment cost index shows private wages & salaries excluding bonuses up an impressive +2.7% y/y, per Morgan Stanley, highest since 2009. But credit for this go to the business cycle & the Fed for creating tight labor market, not Trump.
9/9 Bottom line: Trump promised 3% sustained supply-sided growth; a demand-driven burst lasting from 2017 to 2019 doesn't qualify. It will be a while before we know if the U.S. got the former, not just the latter.
