President Donald Trump’s election ushered in hopes for much faster U.S. economic growth, but in Charlotte and elsewhere such an acceleration remains elusive, some economists say.
As a candidate, Trump boasted the U.S. economy could achieved annual growth as high as 6 percent under his policies, about three times the current annual pace. The administration’s 2018 budget released in May targets at least 3 percent sustained gains starting in 2020, a level also widely viewed by forecasters as out of reach.
Nearly seven months since the new administration took office, Charlotte and the rest of the nation remain in an economic expansion roughly on par with the clip of recent years, with no “Trump bump” in sight, economists say. That’s despite positives such as upturns in consumer confidence, surging stocks and falling unemployment.
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“The reality is most economists today would tell you that for the foreseeable future 2 percent, maybe 2-and-a-quarter percent, is really what we have to look forward to,” said UNC Charlotte economist John Connaughton. “And, honestly, there’s not a lot you can do to change that.”
Meanwhile, forecasters have been slashing their U.S. growth projections for the second quarter of 2017, which ended June 30.
The Federal Reserve Bank of Atlanta’s GDPNow expects gross domestic product growth – a measure of goods and services produced in the U.S. – of 2.6 percent, down nearly 2 percentage points below estimates from May. The Federal Reserve Bank of New York’s Nowcast projects even less growth: 2 percent for the second quarter and 1.8 percent for the current quarter.
Since taking office, the Trump administration has yet to push through proposed changes to the U.S. tax system, plans the administration has cited as key to triggering a robust economic expansion. Congress has yet to tackle the tax agenda as it remains bogged down in efforts to overhaul health care law, and as growing revelations regarding Russia’s influence on the 2016 election remain a major Washington focus.
“I think it’s a little hard to distinguish whether any political decisions in Washington have had any impact on Charlotte,” said Mark Vitner, Charlotte-based economist for Wells Fargo.
“We haven’t had that many changes in policy,” he said. “It’s really been changes in attitude, and a little bit on the regulatory front.”
Economists are quick to note that Charlotte’s economy overall continues to grow at a faster pace compared with other parts of the state and the U.S. as a whole.
I think it’s a little hard to distinguish whether any political decisions in Washington have had any impact on Charlotte. We haven’t had that many changes in policy. It’s really been changes in attitude, and a little bit on the regulatory front.
Mark Vitner, Charlotte-based economist for Wells Fargo
In 2015, the latest year for which data are available, Charlotte’s economy grew 4.3 percent, up from 3.5 percent growth in 2014. The region continues to show healthy signs such as strong population growth, companies expanding and relocating here and a skyline dotted with cranes.
Charlotte 2016 GDP data isn’t expected to be released until September. Rick Kaglic, senior regional economist in Charlotte for the Federal Reserve, said Charlotte’s economy has shown some signs of weakening growth this year as reflected in payroll data, though the region continues to add jobs at a stronger rate than all other metro areas in the state. For the first half of this year, job growth in Charlotte fell to about 2.8 percent compared with about 4 percent a year ago, Kaglic said.
“We’re doing well, just not as well as we had been perhaps at the middle part, end part, of 2016,” he said.
The employment data is generally a good proxy for GDP, he said: “When GDP is rising, you should see an increase in employment and vice versa.”
Softening labor growth highlights a major challenge to Trump’s ambitious economic targets, economists say. That’s because expanding the U.S. workforce is one of two fundamental ways to lift GDP – basically, more workers means more people producing goods and services.
U.S. workforce participation remains below pre-recession levels and is at lows not seen since the 1970s. One projected hurdle: retiring baby boomers, who aren’t expected to be offset by the number of younger people entering the workforce. Some economists argue policies allowing more immigrants to enter the U.S. and fill jobs is one solution, but the potential for such changes is questionable in the current political environment.
The other method for GDP growth is increased worker productivity – the measure of goods and services produced per hour. But current gains in that area are not enough to meet Trump’s goal. U.S. productivity increased 0.2 percent last year, the lowest increase since 2011, after rising 0.9 percent in 2015.
For the second half of this year, growth in Charlotte’s economy could slow as the pace of job gains drops amid declines in the unemployment rate, economists say. Vitner predicts Charlotte will add roughly 32,000 jobs this year, down from 37,000 last year – “still a very strong rate of growth.”
Achieving the burst of growth Trump wants does not appear possible this year, Vitner said.
“It may happen in 2018, but even if it does, it would be at least another year before the impact would show up in the economy,” Vitner said. “If we could get growth-oriented policy this year, the benefits would likely show up in 2019 or 2020, when we could grow 3 or 4 percent.”