No wonder so many of America’s trading partners are unhappy with the Trump administration’s economic policies.
With just a couple of weeks left in the second quarter, it is clear that the U.S. economy has picked up the pace while economies across Europe and Asia have slowed in the second quarter.
The Fed’s median projection for this year is a 2.8 percent expansion, short of the Trump administration’s three percent goal. But that would be the best annual performance for the economy since 2005, prior to the housing bust, the financial crisis, and the Obama administration’s ill-fated stimulus attempts.
The news for the second quarter looks even better. J.P. Morgan economists see the economy growing at four percent for the quarter. Macroeconomic Advisers forecast 4.4 percent. The Atlanta Fed’s GDPNow forecast hit 4.8 percent Thursday.
The U.S. economy has picked up steam in part because of very buoyant consumer and business sentiment, a smoking-hot jobs market, and cuts to both individual and business taxes. Spending at retailers jumped 0.8 percent in May, twice the expected figure.
In Europe, however, the outlook has dimmed. A day after the Federal Reserve announced it would raise rates because of the strong economy, the European Central Bank on Thursday said it would not raise rates for at least a year. The ECB dropped its forecast growth for 2018 from 2.4 percent to 2.1 percent.
Even China shows signs of slowing, with both business investment and retail sales declining in May. The People’s Bank of China has taken a cautious approach, leaving its interest rates unchanged.
The strength of the U.S. and the rising weakness of the rest of the world is all the more remarkable because many economic observers had, until recently, insisted that America’s economic fortunes were not rising because of Trump administration policies but because of “coordinated global growth.” That is, they claimed the U.S. was just participating in a global economic recovery that was not tied to U.S. policy specifically. As one CNN commentator argued in January, “there’s another undeniable force behind the strong American economy: the global economy’s own resurgence.”
Now that America is surging on its own, it is harder to make such arguments sound plausible.
The strength of America’s economy also indicates that critics of Trump’s trade policies may have been wrong when they claimed that tariffs and economic nationalism would damage the U.S. economy. Asked about the effect of tariffs, Fed chair Jerome Powell on Wednesday said there was no indication in economic data or any drag.
“The economy is very strong,” Powell said.