Congressional Budget Office Projects Economic Slowing in 2019

Last month it was announced that the U.S. economy grew by an impressive 4.1% in the second quarter of 2018. The figure was well-touted by President Trump, who declared, “We’re on track to hit the highest annual growth rate in over 13 years.” Now the nonpartisan Congressional Budget Office reports that further growth acceleration is likely throughout this year, although it also anticipates slowing to hit in 2019.

According to Reuters, the CBO projects that inflation adjusted or real gross domestic product would grow by 3.1% for 2018. That easily bests the 2.2% growth the economy saw in 2017, with this year’s strength being attributed to the recent tax cuts, among other factors. As a result, both consumers and businesses have increased spending (as has the federal government). Reuters also notes that accelerated soybean exports also helped the economy reach that 4.1% Q2 figure, although the reason for that export increase was to beat a deadline before retaliatory tariffs took effect in China.

Shifting to 2019, the CBO suggests that growth will fall well short of the 3% that the Trump Administration had said could be sustained with its tax cuts. Instead the effects of the cuts are expected to fade, leading to a significant slowing. As CBO director Keith Hall announced in a statement, “In 2019, the pace of GDP growth slows to 2.4% in the agency’s forecast, as growth in business investment and government purchases slows.” Meanwhile the agency currently anticipates a growth rate of 1.7% in 2020 and beyond.

It should be noted that CBO’s latest estimates don’t necessarily factor in potential effects of the U.S.’s ever-changing trade policy. Hall notes, “When CBO completed this economic forecast in early July, the agency estimated that the macroeconomic consequences of the U.S. tariffs and foreign retaliatory tariffs that had been implemented at that time would be small.” He went on to say, “However, trade policy has already changed since early July and may continue to evolve, so the effects of new tariffs may become more substantial and have a larger effect on the economy than CBO accounted for in its current projections.”

Despite the looming negativity ahead, a 3.1% annual growth figure is still significant. Speaking to the Washington Post, Decision Economics chief economist and strategist Allen Sinai recalls, “A year or so ago, 3.1% in annual growth did not look doable. But it has happened.” So while that continued 3% growth that was touted to help pay for the tax revenue lost due to the Tax Cuts and Jobs Act of 2017 is in doubt by the CBO, perhaps there’s a silver lining for some in the short-term lift the cuts seems to have brought.

Author

Jonathan Dyer

I'm a small town guy living in Los Angeles looking to make solid financial decisions. I write for a number of finance websites, including HuffingtonPost and Business2Community. I founded DyerNews.com in 2015 to focus on personal finance and the emerging FinTech markets.

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