Strong 2nd Quarter GDP Growth Was an ‘Outlier,’ Noted Economist Says

Pantheon’s Ian Shepherdson says tax cuts spurred 4.1% increase, and he thinks future readings will be lower.

“Looks great; won’t last.” That’s the take of Ian Shepherdson, chief economist at Pantheon Macroeconomics, on the burly GDP annual growth rate for the second quarter.

And it was a very good quarter indeed, with the gross domestic product expanding 4.1%. But was it an aberration? Before, economic growth has been roughly in line with the so-so expansion since the Great Recession ended in 2009. Shepherdson pointed out in a research note that 2018’s first quarter, a typically lackluster one, had been revised just slightly upward, to 2.2% from 2.0%.

There have been previous false dawns over the course of the economic recovery. Like 2011’s final quarter, 4.6%. But in 2012, the pace flagged, until the economy eked out a mere 0.1% gain in the fourth period. And 2014’s second and third quarters were 4.6% and 5.2% — only to slow down once more.

The economy has been rising steadily since 2016, Shepherdson said, but he sees no “upward inflexion” from the Trump administration. Terming second quarter GDP growth an “outlier,” the economist predicted that the “Q2 number means 

Want the latest institutional investment industry
news and insights? Sign up for CIO newsletters.

that next week’s monthly data for June will be soft, and the May and/or April numbers will be revised down.” 

To Shepherdson, the current hot tempo owes a lot to the recent tax cuts, a “sugar high,” as Democratic politicians are fond of saying.  Higher government spending and corporate investments should keep the party going to a degree, he wrote. But he foresees a slowdown in consumer spending, which has been strong, and expects the third quarter to come in at 3%.

“The message, then,” he continued, “is that if you borrow enough money from your grandchildren and throw it at the economy, it will grow faster, for a while. You just have to hope your grandchildren are big on the forgiveness front when the check for your not-so-free lunch arrives.”

 

Tags: , ,

«