Still Waiting for the Tax-Cut Boost


Justin Lahart

Justin Lahart
The Wall Street Journal


April 23, 2018 5:30 a.m. ET


The U.S. economy slowed down in the first quarter. That isn’t a surprise, but considering the stimulus hitting the economy it counts as disappointment.

Economists had thought that 2018 was off to a solid start. In early February, forecasters polled by Macroeconomic Advisers expected gross domestic product would grow at a 2.7% annual rate in the first quarter. But a series of disappointing reports on consumer spending pushed estimates lower. Economists in the Macroeconomic Advisers poll now estimate Friday’s first-quarter GDP report from the Commerce Department will show the economy expanded at a 1.7% rate after growing 2.9% in the fourth quarter last year.

The U.S. economy likely grew 1.7% in the first quarter of this year. Here, pedestrians walk through a busy shopping area in Brooklyn on Feb. 23.


Spencer Platt/Getty Images

There are a bunch of reasons to think the slowdown is only temporary. Hurricane Harvey prompted a spate of spending on repairs and replacement items in the fourth quarter, which might have contributed to a bit of a hangover in the first quarter. Some rough weather in the first quarter might have hurt sales. For a second year, tax refunds got off to a slower than usual start as a result of regulatory changes. Then there is the well-worn tendency for first-quarter GDP to underwhelm as a result of problems adjusting the data for seasonal swings. The Commerce Department has been working on this, but many economists suspect the issue hasn’t been fully resolved.

All of which sets the economy up for a bounceback in the second quarter. There is little reason to fret the economy is truly flagging.

Still, the first quarter was when the tax cut took effect, raising the take-home pay of many Americans in addition to sharply reducing corporate taxes. That ought to have boosted consumer spending, but apparently it wasn’t enough to offset the temporary factors weighing on the economy in the first quarter.

Maybe all that is needed is a little more time, and with the addition of the increased government spending that Congress pushed through last month the economy will soon be running a lot hotter. But investors won’t get a sense of whether that’s true until April economic reports start coming out next month. Until then, they are right to be wary.

Write to Justin Lahart at

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