Monday, April 29, 2019

1Q19 GDP: Business Investment Trends for the Last Four Years (Obama vs Trump)

Hidden in last week’s "surprise" 3.2% Q1 GDP number are growth contributions from each of the four standard components of Gross Domestic Product: consumption spending, business investment spending, government purchases, and net exports (or GDP = C + I + G+ Nx).

In fact the Bureau of Economic Analysis publishes the nominal and growth rate figures for each component with every quarter’s GDP release and stores data sets going back for decades on their website. If we look closely at the addendum from the most recent press release (1Q19) we find quarterly growth rates in business investment spending for the last four years:

2Q15: +2.0%
3Q15: -1.2%
4Q15: -5.8%
1Q16: -1.8%
2Q16: -1.0%
3Q16: -0.4%
4Q16: +8.1% (Trump wins election Nov 8, 2016)
1Q17: +4.9%
2Q17: +5.7%
3Q17: +8.8%
4Q17: +0.8% (Trump tax cut passed Dec 22, 2017)
1Q18: +9.6%
2Q18: -0.5%
3Q18: +15.2%
4Q18: +3.7%
1Q19: +5.1%

-Compounded average growth for Obama's last seven quarters in office: -0.1%

-Compounded average growth for Trump’s first four quarters in office: +5.0%

-Compounded average growth since 2017 tax cut: +6.5%

You can see these numbers for yourself on page 7 of the BEA 1Q19 press release at...

Now those numbers being stated, let's look at some analysis by economics pundits and the mainstream media. Do these people actually bother to even look at the data before writing?

1) "The tax cut investment 'boom' is already over. Some say it never really started"

-CNN 1/23/2019

2) "10 months after a steep Republican tax cut went into effect, there remains scant evidence the cuts are boosting business investment as Republicans promised."

-Rick Newman, Yahoo Finance 11/1/2018

3) "Trump’s Tax Cut Has Failed to Deliver Promised Investment Boom"

-Dean Baker (Keynesian), Truthout 2/25/2019

4) "One Year After Trump’s Tax Cuts, the Only Obvious Winners Are Investors... Business investment isn’t doing anything fabulous"

-Jordann Weisman, 12/19/2018

5) "Trump tax cuts fail to boost investment or employment but pile on debt"

Houston Chronicle, 1/30/2019

6) "The Trump administration’s $1.5 trillion cut tax package appeared to have no major impact on businesses’ capital investment or hiring plans, according to a survey released a year after the biggest overhaul of the U.S. tax code in more than 30 years."

-Reuters, 1/27/2019

7) "There’s no sign of the vast investment boom the law’s backers promised... ..Why Was Trump’s Tax Cut a Fizzle? The G.O.P.’s only legislative achievement has been a big disappointment."

Paul Krugman, New York Times 11/15/2018

8) "Not surprisingly, then, the investment boom Trump economists promised has never materialized. Companies didn’t use their tax breaks to invest more; mainly they used them to buy back their own stock...

...there are a number of independent observers, including both Federal Reserve banks and private financial institutions, who produce “nowcasts” that estimate growth based on early data. At this point all of these nowcasts show slowing growth, and most put the first quarter at around 1.5 percent...

...So the theory supposedly behind the Trump tax cut has turned out to be a complete bust."

Paul Krugman, "The Incredible Shrinking Trump Boom," New York Times, 3/30/2019

9) “Mr Trump’s authoritarian style and cult of personality surely would take a toll on business confidence.”

-Larry Summers, Washington Post, June 2016

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