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Trump’s 3% annual GDP promise fell short, even after GDP tax cut

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President Donald Trump came just shy of the biggest economic promise of his presidency in 2018, according to data released Thursday, in the first full year since the GOP’s tax cut bill was passed.

The Bureau of Economic Analysis released fourth quarter and full year 2018 GDP on Thursday, which showed that the US economy grew at a 2.9% rate last year (2.88%, to be exact).

While the annual growth rate was the strongest since 2015, it still came in just shy of Trump’s long-promised 3% annual GDP growth. Many White House advisers were publicly confident that the US would make it to 3% annual GDP, but a fade into the end of the fourth quarter seemed to tail off growth just enough to move the number below that threshold.

Read more:US economy grows faster than expected in the 4th quarter, but annual GDP misses Trump’s goal»

There were two key areas where the GOP and Trump anticipated a boost to economic growth due to the tax bill, which was implemented on January 1, 2018. The first was spending by consumers who were getting higher take-home pay, the second was increased investment by businesses who saw their tax bill fall.

According to the BEA data, both of those categories improved in 2018 compared to previous years but not by significant margins.

On the personal consumption side, consumer spending added 1.81 percentage points to overall GDP and grew 2.6% compared to 2017. This was an increase from the 1.73 point contribution and 2.5% growth rate in 2017, but down from the 1.85 points it added and the 2.7% growth rate in 2016. So while overall consumption growth remained strong, it did not noticeably break out from the post-recession average.

Looking at business investment, nonresidential fixed investment — a proxy for how much companies are spending on capital investments like new equipment and research — did grow at a strong pace in 2018, adding 0.92 points to annual GDP and growing at a 7% pace. Both the contribution to GDP and the rate of growth were stronger than 2017 and 2016.

But the growth in business investment faded in the latter half of the year, with nonresidential fixed investment growing 11.5% and 8.7% in the first and second quarter, respectively, and only 2.5% and 6.2% in the third and fourth quarter, respectively.

The slowdown in the latter half of the year was likely a major reason that Trump was unable to capture the elusive 3% annual mark.

‘Nothing more than a sugar high’

While it is just one year and it’s unclear how these investments will sustain into the future, the slowing trend over the course of the year led many economists to expect post-tax cut business investment may have peaked.

Ian Sheperdson, the chief economist at Pantheon Macroeconomics, wrote in a note to clients that the trend over the year showed that business investment is likely “softening” and that 2018 may have been the high-water mark for the tax cut boost.

“The bigger picture for this year is that growth is reverting to the post-crash trend, 2-to-2.5%, demonstrating that the personal tax cuts offered nothing more than a sugar high, and that the business tax cuts did nothing to lift trend growth,” Shepherdson said.

Read more: Trump said tax cuts would be ‘rocket fuel’ for the US economy. Here’s why they weren’t.»

Similarly, economists across Wall Street have projected business investment will return to its long-run pace in 2019. According to Bloomberg data, the average 2019 GDP projection is 2.5%.

While business investment and personal consumption didn’t explode like Republicans might have hoped, Trump did get a big boost from his own government.

Government spending contributed 0.26 points to GDP in 2018, a significant boost from the -0.01 point drag in 2017. This was in large part due to the massive bipartisan budget deal reached by Congress early in the year.

Stripping government spending out of the equation, Trump would have delivered 2.6% GDP growth — well below the promised amount.

This isn’t to say that 2018 GDP was a huge disappointment. Year-over-year GDP growth in the fourth quarter did come in at 3.1%, the annual number is still at the higher-end of most people’s previous long-term forecasts, and many economists scoffed at the idea that GDP would approach 3%. But there didn’t seem to be the “rocket fuel” added to the economy that Trump once promised.

It is also important to note that the numbers will get revised once more on March 28, so there could be some wiggle room for Trump to get the growth that was promised. But based on Thursday’s numbers, Trump came up a tad short.

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