Trump speech could detail economic plan, tax cuts
A busy week of economic news will be highlighted by a familiar wildcard: President Trump. Trump is scheduled to address a joint session of Congress Tuesday evening and analysts are awaiting any details of his economic plan, particularly tax cuts. A batch of other releases will shed light on business investment, consumer confidence and spending, the health of the manufacturing and service sectors, and a revised estimate of economic growth in the fourth quarter.
Business investment has turned up in recent months after a prolonged slump. Credit a partial rebound in oil prices that has spurred more orders for drilling materials, and a nascent comeback in business stockpiling. Nondefense capital goods orders excluding aircraft – a proxy for business capital spending – has risen for three straight months, including sharp increases averaging more than 1% in November and December. Nomura economist Lewis Alexander expects the Commerce Department’s durable goods report Monday to reveal a more modest increase for January.
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Giving business investment a shot in the arm by lowering taxes could be a centerpiece of Trump’s speech to Congress Tuesday. But economists have lots of concerns. Lowering the corporate tax rate from 35% to 15% as Trump has proposed is likely to be viewed warily by Republicans worried about swelling the budget deficit. And many oppose a new border adjustment tax on imports that could help offset the corporate tax cut but raise prices for consumers. Some lawmakers are also skeptical of Trump’s belief that government revenue losses from a tax cut would be made up by faster economic growth.
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The economy slowed late last year after a breakout third quarter, growing at a 1.9% annual rate, as healthy gains in consumer spending, housing starts and business investment were partly offset by sluggish exports. That’s slightly below the recovery’s average 2% pace. Alexander expects upward revisions to all of those positive contributors. Overall, economists figure Commerce will upgrade its fourth-quarter growth estimate to a 2.1% annual rate.
Consumer confidence slipped a bit in January but remained close to the 15-year high reached the previous month. Americans have been buoyed by steady job and income growth, record stock and home prices, and cheap gasoline. Economists expect the Conference Board to report that its consumer confidence index dipped marginally in February but remained at a lofty level.
Gone shopping: Retail sales surged in January
The same forces that have lifted consumers’ outlook have bolstered their spending, with consumption rising a sturdy 0.5% in December. Economists expect Commerce on Wednesday to report a still solid 0.3% increase for January.
The recent revivals in the oil patch and business stockpiling have spurred a bounce-back for manufacturers. Economists expect the Institute for Supply Management’s index of manufacturing activity to show continued solid expansion in February.