Carney: The Trump Economy Keeps Humiliating His Critics

Critics scoffed when President Trump unveiled his budget proposals last spring. They might not be scoffing much longer.

Trump’s budget proposal in May showed the government achieving a balanced budget in large part because it forecasted the economy to grow at 3 percent, a dramatic increase from the sluggish 1.6 percent growth in the final year of the Obama administration. Many economists, however, said the number was unrealistic.

The Federal Reserve and the International Monetary Fund predicted the economy would grow by just 2.1 percent this year. The Congressional Budget Office predicted the economy would grow by an average of just 1.8 percent during the next decade.

The skepticism about Trump’s 3 percent was somewhat justified. Trump took over an economy that was teetering on the brink. In the first three months of the year, the economy grew at a rate of just 1.2 percent. Many economists believe Trump’s promises to revive American manufacturing and improve the balance of trade are unrealistic at best. Some fear limits on immigration or what they call “protectionism” could actually spark a recession.

The Trump administration itself said the economy in 2017 would grow by around 2.3 percent, only rising to 3 percent by 2020.

But even as good economic data piled up, economists stubbornly clung to their gloomy outlooks. Economists polled by Reuters predicted the economy would grow at a 2.6 percent annualized rate in the second quarter, which was on target for the initial reading the Commerce Department released on July 28. A month later, economists predicted a slight upward revision to 2.7 percent and were surprised when the Commerce Department’s second reading in August said the economy grew at a 3.0 percent rate.

Economists thought that was as good as things could get. So when surveyed, they projected no change in the final number released in September. And a September survey by the National Association for Business Economists, for example, forecasted economic growth of just 2.2 percent in 2017. But the number was revised upward again, to 3.1 percent.

While the second quarter had proved embarrassing for the economics profession, economists were confident that this was an anomaly. They predicted the economy would slow down to a 2.4 percent growth rate in the third quarter, according to the Wall Street Journal’s survey of economists. J.P. Morgan Chase’s economists said third-quarter growth would come in at just 2.25 percent.

On Friday, however, the Commerce Department said the economy grew at a seasonally adjusted 3 percent in the third quarter.

And the expansion was very, well, Trump-ian. Businesses went a bit MAGA, building up inventory in anticipation of strong demand. Business investment on equipment rose at an 8.6 percent rate. Exports increased at a 2.3 percent rate, while imports fell at a 0.8 percent rate, shrinking the trade deficit. Government investment fell for the third straight quarter, which means more of the growth is coming from the private sector.

Growth in consumer spending slackened, most likely due to Hurricanes Harvey and Irma. The storms also weighed on investment in things like oil and gas wells and spending on homes. But those declines may very well reverse in the fourth quarter as the rebuilding starts hitting the economic tape.

Economists now expect the economy to grow at a 2.7 percent pace for the rest of the year. If they’re right and the third quarter number holds up–it will be revised two more times–the economy would have grown 2.5 percent in 2017.