Finally, the estimates for a 4th quarter GDP came out last week. The current official estimate is a 4Q GDP rate of 2.1%. Add it to the rest of the year, and you get an annualized US GDP of 2.3% in 2019. While that may be disappointing to an administration hoping for sustained GDP over 3%, that goal was probably never realistic. Rather, the Congressional Budget Office, The Federal Reserve, independent economists, and the consensus view of Wall Street firms for the past decade have had a pretty consistent message: expect GDP to hover in the 2% to 2.5% range.
There are actions the administration and central bank can take to adjust facets of the market and economy. For instance, the revamped tax-code can change the calculus on stock valuations, directing more towards owners, bolstering optimistic valuations, at the long-term cost of ever-expanding fiscal deficits. Also, the Federal Reserve can offset investment weakness with accommodative policy, pushing money into risk-on assets, while punishing bond purchasers and reducing the ability to Fed’s ability to counteract a genuine crisis. but fighting the long-term inputs on GDP calculations – productivity and the size of the labor force – is like fighting gravity. It didn’t matter who was in the White House or how the stock market did from day-to-day. The real-world economy is independently chugging along, unaffected by most of the ideas and proposals which are too small to have a discernible impact.