Business & Tech

Evan Horowitz | Quick Study

Tax cuts aren’t driving growth so far

President Trump’s tax cuts don’t seem to have supercharged America’s economy — not yet.
CHRIS KLEPONIS/POOL/EPA/Shutterstock
President Trump’s tax cuts don’t seem to have supercharged America’s economy — not yet.

President Trump’s tax cuts don’t seem to have supercharged America’s economy — not yet.

The US economy grew at a solid but unspectacular 2.3 percent in the first quarter, according to official numbers released Friday. That’s consistent with our lumbering, nine-year recovery from the financial crisis, but far below the promised land of 3 to 4 percent growth that Trump and his advisers have touted.

Less than four months have passed since the momentous signing of those Republican tax cuts, so evaluation of their effect is still preliminary. The full effect will no doubt get clearer over time.

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Still, the closer you look at Friday’s GDP numbers, the harder it is to see any signs of an economic takeoff fueled by tax cuts.

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The whole theory behind the Republican tax plan was that it would spur businesses to spend the savings on better machinery, more modern facilities, and other necessary improvements. These investments would ultimately make workers more productive, boosting wages.

But so far, there’s little sign of a surge in business investment. Nonresidential fixed investments — as they’re called in GDP-speak — increased 6.1 percent during the first quarter. That’s a strong showing, but hardly unprecedented; it was 7.2 percent in the first quarter of 2016, and 6.8 percent in the fourth quarter.

It’s a similar story with new orders for goods like vehicles and equipment. A Census Bureau survey of manufacturers found that orders for durable goods slowed in the first quarter.

And that’s a poor sign for the future because orders are an early step in the purchasing process that leads to increased economic activity.

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Other figures show more promise. Bloomberg this week reported that many publicly traded companies showed a big increase in capital investments during the first quarter of this year — more than those that used their tax savings for stock buybacks, often a boon for investors. But again, the figures are hardly definitive, and the takeaway of these first few postreform months remains that it hasn’t quite fueled an investment boom.

None of this is necessarily dire. GDP growth of 2.3 percent may actually be faster than the US economy can sustain, given our aging population and lack of increased productivity in recent years. So if economic growth continues at current rates, that would mostly be good news for American workers and businesses.

And who knows? Maybe the full effect of Trump’s tax cuts won’t be felt until later this year. In the past, there have been problems with the way government has adjusted for seasonal swings, resulting in first-quarter numbers looking unduly anemic (the feds have made changes to fix this.) And the Federal Reserve said in March that it expected growth to average 2.7 percent for the year as a whole.

But there doesn’t seem to be a lot of forward momentum. To the contrary, growth in Europe is slowing, the Fed is readying a barrage of interest rate hikes, the yield curve on bonds is flattening, and the stock market keeps pulling back despite strong corporate earnings.

Fifteen months into Trump’s presidency, and with his signature tax policy now in place, the United States can’t seem to enter that new era of sustained 3 percent growth that his team keeps promising, much less the 4 percent number he touted on the campaign trail.

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Instead, it’s business as usual. Which, since 2010, has been pretty good.

Evan Horowitz digs through data to find information that illuminates the policy issues facing Massachusetts and the United States. He can be reached at evan.horowitz@globe.com. Follow him on Twitter @GlobeHorowitz.