An analysis of data by the Economic Policy Institute shows that President Donald Trump’s tax cuts – which disproportionately benefited corporations and the wealthy – have not had their desired impact on the U.S. economy to this point, with first quarter numbers indicating no trickle down effect has yet taken place.
Overall, GDP grew at a 2.3 percent annualized rate in the first three months of 2018, down from 2.9 percent growth in the last quarter of 2017. The component of GDP that the proponents of the tax cuts argued would respond most strongly to their passage was business investment. In the first quarter of 2018, the pace of growth of non-residential fixed investment actually decelerated slightly relative to the final quarter of 2017, falling from 6.8 percent to 6.1 percent.
In short, there is nothing in today’s GDP report to indicate that the tax cut is working to boost economic growth or investment.
Consumer spending also crawled through the first quarter:
Final sales—GDP stripping out volatile inventory investment—grew at just 1.9 percent. Key weakness in this report was in motor vehicles and parts, which subtracted 0.25 percent from the quarter’s growth rate.
Finally, there was a striking deceleration of “core” inflation measures in this report (prices excluding volatile food and energy). The year-over-year change in the price index for personal consumption expenditures—the measure that is targeted for 2 percent growth by the Federal Reserve—was just 1.5 percent, down from 1.9 percent in the preceding quarter. Yet again, the price data indicates that the economy is likely not running at full capacity.