Thursday, December 21, 2017

Goldman on "Fiscal Boost"

by Bill McBride on 12/21/2017 04:32:00 PM

A few excerpts from a note by Goldman Sachs economist Alec Phillips:

Overall, the legislation is somewhat more front-loaded than the earlier Senate version, and as a result we expect it will boost growth slightly more in 2018. We estimate a positive impulse from the tax bill of 0.3pp in 2018 and 0.3pp in 2019.
...
We are adjusting our forecasts to reflect the final details of the tax bill, as well as the incremental easing in financial conditions and continued strong economic momentum to end the year. We are increasing our GDP forecasts for 2018 and 2019 by 0.3pp and 0.2pp, respectively, on a Q4/Q4 basis (to 2.6% and 1.7%). We are also lowering our year-end 2018 unemployment rate forecast by two tenths to 3.5%, mainly reflecting a modestly higher expected pace of job growth. We now expect the unemployment rate to bottom in this cycle at 3.3%, at the end of 2019. ...

With more fiscal stimulus comes larger deficits, and we are increasing our deficit projection somewhat to take the recent tax legislation into account, as well as upcoming spending legislation. We expect the deficit to rise to 3.7% of GDP in FY2018 and to 5% of GDP in 2019 ...