JPMorgan Says U.S. Fiscal Boost Not Here Yet But It's On Its Way

(Bloomberg) -- Tax cuts and increases in government spending have yet to deliver a significant boost to the U.S. economy, but the lift is still coming, according to JPMorgan Chase & Co. analysts.

Delays in reducing employers' withholdings from workers at the start of the year may have limited the immediate impact of lower taxes, and since then, people have more disposable income to spend, JPMorgan's Michael Feroli and Jesse Edgerton wrote Wednesday in a note to clients. “Total taxes withheld from paychecks from February to April 2018 were actually below the level in 2017, despite about 3.5 percent nominal income growth since then,” they said.

In addition, the $143 billion increase in budget authority enacted in February will have a bigger impact than the tax cuts, but the fiscal boost shouldn't actually start to take effect until later in the year, according to Feroli and Edgerton. That's because there is usually a lag between increases in budget authority and actual spending by federal agencies.

The JPMorgan analysis compares with an assessment from Kevin Hassett, chairman of President Donald Trump's Council of Economic Advisers. Hassett said last week that “the Trump tax policies are working exactly as intended” and have boosted capital spending and compensation.

The economists from JPMorgan said they expect the budget increase to boost GDP growth by 0.4 percentage point in 2018 and 0.3 point in 2019, with the peak impact coming in the fourth quarter of this year. Meanwhile, the personal tax cuts should boost growth by 0.2 percentage point this year and 0.1 point next year, with the peak effect in the current quarter. And the corporate tax cuts will have the smallest effect, boosting GDP growth by 0.1 point both this year and next, they said.

To contact the reporter on this story: Matthew Boesler in New York at mboesler1@bloomberg.net.

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Scott Lanman, Vince Golle

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