Assessing the Bureau of Economic Analysis 2018 Q1 GDP Estimate
April 30, 2018
Friday, the Bureau of Economic Analysis (BEA) released its first quarter estimates of the major components of GDP. This the first full quarter of data released since the passage of the Tax Cuts and Jobs Act. However, these estimates are still what BEA calls “advanced” estimates (BEA will release its full estimates later next month) and one quarter of data is probably not enough to make any strong conclusions about the impact of any given policy.
According to BEA, first quarter real GDP rose by 2.3 percent (annualized rate), which was slightly slower than real GDP growth in quarter 4 of 2017 (2.9 percent). However, GDP in quarter 1 of 2018 grew by 2.9 percent over quarter 1 of 2017 last year. This is an acceleration of the U.S. economy. Quarter 4 of 2017 grew 2.6 over quarter 4 of 2016, while quarter 1 of 2017 grew 2 percent over quarter 1 of 2016.
Can we say anything about the Tax Cuts and Jobs Act (TCJA) with this data? One place where the TCJA would likely show up is in fixed investment, especially that of equipment and structures. The TCJA reduced the corporate tax rate and sped cost recovery for these assets. According to BEA, fixed investment in equipment grew by 4.7 percent (annualized) in quarter 1, which is slower than the previous period, which saw annualized growth of 11.6 percent. Nonresidential structures grew at an annualized rate of 12.3 percent in quarter 1, which is nearly twice as fast as the previous period (6.3 percent in quarter 4 of 2017).
However, as Greg Ip of The Wall Street Journal mentioned, we don’t know to what extent this is timing. Companies may have pulled many planned investments forward into quarter 4 of 2017 from quarter 1 of 2018, which would have the effect of reducing investment growth in quarter 1 of 2018.
It is also worth mentioning that investment in nonresidential structures ticked up very slightly over the last quarter (about 0.1 percent of GDP) and investment in equipment remained steady as a share of GDP.
While the data in this first full quarter since passage of the TCJA shows some positive trends in GDP, it shows a slight reduction in the growth of investment, possibly due to timing. As we get more data over time, we will be able to make stronger observations about the economy after the passage of the tax law. But we should always be careful of making too strong conclusions as we can never observe the counterfactual, or the economy in which the tax law never passed.