House Ways and Means Committee Chairman Kevin Brady discusses the current economic growth and the GOP policy initiatives behind tax proposals.
Chairman Brady emphasizes an intent to make the current middle-class tax cuts permanent in the next legislative session if Republicans can do well in the midterm election. One of the benefits from previously ‘unexpected’ (by CBO) MAGAnomic growth is the baseline calculations for ‘revenue neutral’ did not factor in the current GDP growth rate. [All previous Congressional Budget Office forecasts were underestimated.]
As Rep Brady outlines President Trump is committed to empowering Main Street, not Wall Street, as the driving force behind U.S. economic growth. [The essence of MAGAnomics.] Every.Single.Trump.Policy targets support to Main Street. Period.
The Commerce Department, Bureau of Economic Analysis (BEA), has released the first estimate of the third quarter GDP growth for June, July and August 2018 (full pdf below). The rate of economic growth in Q3 is estimated at 3.5%, exceeding most forecasts of slightly more than three percent. The second quarter growth was 4.2%.
“Defying ‘conventional wisdom’ once again, 3.5 percent growth is the latest sign that the Trump economy continues to surge,” said Secretary of Commerce Wilbur Ross. “The President’s actions from deregulation to tax reform have supercharged the American economy, driving it to new heights.”
Overall the 3.5% growth is exceptionally strong. To see the data bolstering a positive future forecast I would draw attention to Table 2 (lines 43 through 49) and the analysis for net impact over Exports/Imports. The heavy import number delivered a net subtraction of 1.78% from GDP growth; that’s a result of a large increase in imported durable goods [likely anticipatory holiday inventory buildup].
As you can imagine from your own shopping experiences, durable goods inventories generally climb in the third quarter as companies increase inventory in preparation for holiday sales in quarter four. The growth in the buildup of this inventory is significantly higher than historic trend; this means companies are forecasting strong consumer demand for goods in Q4, the holiday season.
The value of imported goods are deducted from GDP at the time they are acquired. The Commerce Department (BEA) does not track purchase ‘orders’, they track purchase ‘payments’. The majority of contracted terms for goods, depending on company and industry, are “net 30 days”; meaning the full purchase cost for the product is due to the manufacturer or wholesaler 30 days from delivery. However, when the deducted inventory cost turns into sales, consumer spending then drives domestic economic activity (GDP growth) at the time the product is sold.
Further support for a booming Q4 purchase prediction can be found in the current 4% growth of consumer spending. With wages growing (3.8% avg), and with an incredibly strong jobs market, people are making large purchases with confidence. Additionally, price data in the current GDP report shows inflation at a 1.6 percent annualized pace.
Add it all up and you can see the reason for companies to boost inventory ahead of a very strong holiday season. The middle class drives the MAGAnomic economy. Workers are getting paid more and being taxed less; our paychecks are bigger.
Simultaneously inflation is low (prices not increasing), so the net is more disposable income to make purchases, combined with confidence in wages/jobs allowing people to spend more.
Bloomberg – The U.S. economy expanded at a 3.5 percent pace in the third quarter as consumers opened their wallets, businesses restocked inventories and governments boosted spending, marking the strongest back-to-back quarters of growth since 2014.
The annualized rate of gains in gross domestic product compared with the 3.3 percent median estimate in a Bloomberg survey and followed a 4.2 percent advance in the prior three months, according to Friday’s report from the Commerce Department.
Consumer spending, which accounts for about 70 percent of the economy, unexpectedly accelerated to a 4 percent increase — the best since 2014 — while the 0.8 percent gain in nonresidential business investment was the weakest in almost two years. In two volatile categories, inventories provided the biggest contribution since early 2015, while the drag from trade was the largest in 33 years. Government spending rose by the most since 2016. (read more)
Here’s the full BEA report. [Table 2 is on page 8]
Keep in mind, none of the revamped trade deals have come into play yet….