Despite two massive hurricanes, the GDP, which is the measure of goods and services produced in America, grew to 3% in the third quarter.
Experts estimated a growth of only 2.5% because of the natural disasters, but the “increase in inventory investment and a smaller trade deficit” helped offset the slow spending after the hurricanes.
The White House economists have also said that if the proposed changes to corporate taxes go through the GDP could jump between 3 and 5 percent in a few years.
Third Quarter GDP
From The Wall Street Journal:
The Commerce Department said the storms likely suppressed business activity such as oil and gas extraction in Texas and agricultural production in Florida. Residential construction also fell. But the storms may have boosted other types of activity, such as emergency services and repair efforts. “It is not possible to estimate the overall impact of Hurricanes Harvey and Irma on 2017 third-quarter GDP,” the agency said.
The report showed at least one reason for caution in assessing the outlook. A big chunk of the 3% growth—0.73 percentage point—came from inventory investment, or the process of companies restocking their shelves. The increase could indicate higher confidence among businesses, or it could simply be a temporary move to rebuild inventories after they became depleted earlier this year.
Bloomberg noted that consumer spending added 1.6 percentage point to the growth. The majority of that growth occurred in the auto sector “as Americans replaced cars damaged by the storms, while services spending slowed to the weakest pace since 2013.”
However, across the country, the GDP also received help from “a steady job market, contained inflation and low borrowing costs,” which helps people maintain their level of spending. Businesses have also opted to spend more “for long-term projects-like equipment and facility upgrades-this year after several years of caution.”
Economists believe that this quarter will help propel 2017 above the 2% trend.
Corporate Tax Changes Boost GDP?
The White House Council of Economic Advisors (CEA) stated in a report on Friday that the changes to the corporate tax rate the White House wants to impose will boost the GDP between 3 and 5 percent. From The Hill:
The CEA estimated a 3 to 5 percent increase in long-run GDP, compared to the Congressional Budget Office’s baseline, if the corporate rate is 20 percent and full expensing is permanent.
“Our estimates indicate a 0.5 percent increase over the baseline CBO forecast in year one and a 4.2 percent increase in the long-run steady state,” the CEA said in the paper. “Eliminating full expensing of non-structure assets in year five, however, would reduce the long-run steady state increase in GDP to 3.1 percent. The economy would achieve the higher growth path if firms expect the policy to be continued.”
The paper also expands upon the CEA’s analysis in an earlier paper that the proposed corporate rate cut would “very conservatively” increase average household income by $4,000 annually. Some outside analysts pushed back on that paper.
CEA Chairman Kevin Hassett told reporters that the corporate tax cuts and Trump’s budget “would create enough growth to make overall tax cuts revenue neutral once they were fully implemented into the economy.”
This could all change depending on what the tax bill says. Rep. Kevin Brady (R-TX), chairman of the House Ways and Means Committee, said that he will release text of the tax bill on November 1. He has admitted that the tax writers have not determined some of the major points, such as which incomes will fit into the three proposed brackets from the WH.
Hassett also emphasized the dual importance of cutting the statutory corporate tax rate and easing the repatriation of funds U.S. companies hold overseas.
“Our current tax code incentivizes this shell game, and massively increases our trade deficit,” Hassett said of the practice known as offshoring. By reducing the corporate tax rate to 20 percent, “firms will have much less incentive to play this round-trip game.”
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