Round-Up: 17Q4 Real GDP Growth Likely to Stay at +2.6% in Second Report; Budget Deal Approved

posted by Michael Lewis on February 9, 2018 - 2:37pm

With the government open for business as usual this morning, book-valuewholesale inventories were reported up +0.4% in December. Including revisions, these data were in-line with BEA’s estimates in the Advance Report of 17Q4 GDP. FMI is still tracking no net change to 17Q4’s +2.6% real GDP growth in the Second Report on February 28.  
Although legislators were kept up well past midnight by procedural objections from Sen. Rand Paul -- no doubt the least popular person on a bleary-eyed Capitol Hill this morning -- both the House and Senate easily approved the budget bill, thus keeping the government open and increasing federal spending (and boosting the deficits accordingly) in FY2018 and FY2019 (and beyond).
In the House, 67 Republicans (30% of the GOP caucus) balked at the huge price tag, but 73 Democrats (40% of the Democratic side) ignored Minority Leader Nancy Pelosi’s call to vote “no” because immigration relief for “Dreamers” was not included.
Congress will take up immigration issues in a separate bill, likely in March. 
Higher federal spending is likely to be a modest plus for near-term real GDP growth. However, FMI has long scoffed at the notion of "multipliers" on public spending. Models that purport to show such gains are based on assumptions that mutlipliers exist. In reality, public spending must be paid for, eventually, by taxes on the private sector which necessarily slow growth.
The net impact on GDP over the medium term is negligible (and potentially negative depending on how much of the additional federal spending goes to pure boondoggles).