The Economy Firing On All Cylinders

Council of Economic Advisers

July 28, 2018

The rate of growth of the economy, also known as Gross Domestic Product or GDP, is one of the most important indicators of the health of our country’s economy.  Today’s news did not disappoint; over the past year (4 quarters), our average annual growth rate has been a healthy 2.8 percent.

Thus far in 2018, real GDP is on track for growth of 3.1 percent over the calendar year, which would be the first calendar year of growth over 3 percent since 2005. This is exactly in line with the Administration’s own forecast of 3.1 percent, and well above the Obama Administration’s forecast of 2.3 percent. It is also a growth rate many claimed was impossible.

To put this achievement in perspective, during the entire period from 2001-2016, the annualized rate of real GDP growth in the first half of the year averaged just 1.9 percent.

President Trump believed we could get away from the Obama-era theories of “secular stagnation” – being doomed to slow growth – by changing the policies that caused that sluggishness.  The Tax Cuts and Jobs Act, deregulation, and other business-friendly Administration policies are making higher growth possible.

As a result, over the first 6 full quarters of the Trump Administration, growth has averaged 2.7 percent.  In contrast, during the first 6 full quarters of Presidents Obama’s second term, growth averaged just 2.4 percent, when the economic expansion should have been in full swing and demographic pressures were less of a weight.  Overall, during their respective 8 years in office, growth under Presidents Bush and Obama averaged just 1.8 and 1.9 percent, respectively.

With growth in 2016 still only 1.9 percent, the Obama Administration projected this “new normal” to continue. Instead, growth edged up to 2.5 percent in 2017, exactly in line the Trump Administration’s forecast, and surpassing the Obama Administration’s forecast of 2.4 percent.