MIDTERM ELECTION WASHOUT?

2018 is now staring our 45th president and the GOP right in the face!

If it wasn’t for the fact that the Democrats are in such a “sorry state of affairs” themselves, next year’s election would be a pending tsunami rushing toward the shores of the incumbent Republicans, with the results being a wipe-out of epic proportions, across our fruited plain.

Nonetheless…

Our U.S. economy grew ??? by a scant 0.7% in the first quarter of 2017, and Republicans should take it as a warning that they’d better start moving on tax reform if they want to prevent a midterm election washout in 2018.

Donald John Trump and other Republicans have been dining out on the improvement in consumer and business confidence since Election Day, and with some cause. But the first quarter results show that sentiment alone won’t lift the economy !!! out of its 2% Obama growth doldrums. The so-called Trump reflation trade in stocks is a bet on pro-growth policies, and that trade [an area to really keep an eye on throughout this year] can deflate as quickly as it rose if those reforms do NOT materialize.

The first-quarter report is also a good window on the state of the current expansion, which will hit its eighth anniversary in June. Consumers have powered most of that growth, and the first quarter was weak in large part because they took a breather. Consumer spending barely rose in the quarter and contributed a meager 0.23% to GDP [NO serious economist knows how to read into this stat].

This first quarter of Trump was saved by a revival in business investment, which rose a healthy 10.4% in the quarter and contributed 1.62% to the GDP increase. This investment was offset by a sharp decline in inventories that deducted 0.93% from GDP, but which will probably rebound in future months. Net exports also helped thanks to faster growth overseas, which ought to caution the Administration about starting trade wars.

ALL of this shows that avoiding a recession in Trump’s first term will require a new surge of business confidence and investment. Capital investment has been historically weak in this expansion, but the good news is that there is plenty of money around to invest if the government can give businesses new incentives do so.