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Here's why Trump's GDP growth target will be hard to hit

After an unexpected growth spurt in the third quarter, the U.S. economy has settled back onto a slower track — a trend forecasters expect to continue despite President Donald Trump's pledge to boost the pace of growth.

The Commerce Dept said Friday that gross domestic product rose by 1.9 percent in the last three months of 2016, after clocking in at a 3.5 percent rate in prior three months. That third quarter reading was the fastest pace of growth in two years.

But a big piece of that surprise gain came from a surge in soybean exports, much of which was shipped to China. U.S. farmers are on track for a record soybean harvest of more than 4 billion bushels. At the same time, a poor harvest in Brazil boosted demand for the U.S. crop from big importers like China.

That one-time gain likely won't be repeated in coming quarters.

Most forecasters had already predicted the third quarter surge wouldn't carry into this year. Economists at the New York Federal Reserve, for example, are currently estimating GDP growth of 2.7 percent in the first quarter of this year, based on their "Nowcast" that combines other recently reported economic data.

And in their latest economic outlook, forecasters surveyed by the National Association for Business Economics said they expect U.S. gross domestic product to grow by just 2.2 percent for all of 2017.

"The slow pace of growth in recent years may be the 'new normal,' as more than 80 percent of survey panelists estimate that the potential rate of economic growth will be 2.5 percent or lower over the next five years," NABE President Stuart Mackintosh said in a release.

Those forecasts fall short of the growth target that Trump has set. In September, he said his proposed tax cuts and deregulation would add 25 million jobs over 10 years and boost economic growth to 3.5 percent.

"My great economists don't want me to say this, but I think we can do better than that," Trump said in a speech to the Economic Club of New York.

Economists have debated the multiple causes for the slower growth, but the downshift is clear in the data. Between 1980, when the U.S. was emerging from a ruinous bout of inflation, and 2000, when the "internet bubble" burst, GDP grew by an average 3.5 percent a year. Since 2000, however, growth has slowed to an average 1.9 percent.

In explaining the weaker growth rate, many economists point to slower gains in productivity, a measure of how much output is produced for every hour of labor. After rising sharply in the 1990s, those gains have slowed.


Trump's supporters argue that cutting corporate taxes and regulations will boost GDP growth back to the pace seen in the 1980s and 1990s. They are also pushing for a major investment in infrastructure spending that could provide stimulus and boost growth.

But those measures have yet to be spelled out, making their impact on GDP hard to predict. Heavy federal borrowing to pay for new infrastructure, for example, runs the risk of boosting interest rates, which would put a damper on growth.

The economic impact of Trump's policies on immigration and trade are also uncertain. With labor markets already tight in many parts of the country, a clamp-down on immigration could leave businesses with unfilled jobs.

Trump's threats to impose tariffs on imports from Mexico and China, two of the largest U.S. trading partners, could also produce a backlash from those countries that hurt American exporters.

That could further dampen growth. Over the past five years, exports have made up about 13 percent of total U.S. GDP.