{"id":6674168,"date":"2018-11-02T13:13:18","date_gmt":"2018-11-02T13:13:18","guid":{"rendered":"http:\/\/cfe.econ.jhu.edu\/?p=6674168"},"modified":"2022-05-17T12:59:58","modified_gmt":"2022-05-17T12:59:58","slug":"zero-bound","status":"publish","type":"post","link":"https:\/\/krieger.jhu.edu\/financial-economics\/2018\/11\/02\/zero-bound\/","title":{"rendered":"Zero Bound"},"content":{"rendered":"\n
The outlook for growth in employment and corporate earnings over the next few years is headed down.<\/p>\n\n\n\n
The problem is not what the Federal Reserve will do, or what a Democratic (or Republican) Congress is likely to do, or the possibility of a mushrooming trade war. It is the unsustainable nature of what has caused the good news this year.<\/p>\n\n\n\n
Job growth is going to have to slow, and corporate profits cannot keep rising as they did in 2018.<\/p>\n\n\n\n
The economic growth has been impressive. President Trump\u2019s term in office has gotten off to the best start of any presidential term in this century, at least as measured by GDP growth. It is an accomplishment that some commentators have been reluctant to credit to the president, but it now seems clear that his policies played a major role in stimulating growth, particularly this year.<\/p>\n\n\n\n
But that growth is not coming in the way the Trump administration forecast, and it is unlikely the growth — particularly in employment — can continue for much longer.<\/p>\n\n\n\n
The job numbers reported Friday showed that the economy has gained an average of 213,000 jobs in the first ten months of the year, while the unemployment rate has fallen to 3.7%.<\/p>\n\n\n\n
Real GDP rose at an annual rate of 3.0% during the first six full quarters of the president\u2019s term — beginning in the second quarter of 2017 and continuing through the third quarter of this year, according to preliminary estimates released last week.<\/p>\n\n\n\n
That is the best beginning to a four-year presidential term since Bill Clinton\u2019s second term in 1997-98, and the best for any Republican president since Ronald Reagan\u2019s second term in 1985-86.<\/p>\n\n\n\n
The president\u2019s two primary economic moves \u2013 the tax cut and his threatened trade war \u2013 each played a role in the growth.<\/p>\n\n\n\n
Fiscal stimulus, we teach our undergraduates, is likely to elevate the short run pace of economic growth. The 2018 to-date response has registered a textbook response.<\/p>\n\n\n\n
Which textbook? Sadly for the storytellers at the White House Council of Economic Advisors, the acceleration looks quite Keynesian. When the tax cut was enacted, great store was placed on the potential for a big acceleration in business investment, leading to a leap for the growth rate in labor productivity. Instead we have witnessed a leap for consumer spending, a faltering pace for business equipment investment and no significant change in productivity. The principal strength for business investment, oil well drilling, was already in train, and reflects the rebound for crude oil prices.<\/p>\n\n\n\n