2 Losers and a Big Winner from Friday’s Terrible 4Q GDP Report

January 27, 2017, 5:17 PM UTC
3rd Quarter U.S. GDP Rises 5.0 Percent; Fastest In 11 Years
MIAMI, FL - DECEMBER 23: Deymi Torrez shops in the Victoria Fashion store as reports indicate that the 3rd quarter GDP was 5.0%, revised up from last month's estimate of 3.9% and a large part of that was due to consumer spending on December 23, 2014 in Miami, Florida. The GDP growth is the most since the 3rd quarter of 2003. (Photo by Joe Raedle/Getty Images)
Photograph by Joe Raedle — Getty Images

The U.S. economy grew only 1.9% in the fourth quarter, a sharp drop from the 3.5% growth rate it posted in the previous quarter. Economists had predicted a 2.2% rise, so the results can best be described as lackluster. Here are the biggest losers and one winner from the Commerce Department’s report.

Donald Trump: Winning

Photograph by Getty Images

President Trump comes out ahead in this because the news makes the Obama economy look worse. For the year, the economy grew 1.6%. Trump has promised 4% growth, mostly through cutting corporate taxes and rolling back regulations. The weaker the economy seems, the more pull Trump has to push his economic agenda. It would be much easier from critics to call out the moves he makes if they disrupt an economy already firing on all cylinders. Now, not only will Trump have more freedom to implement his plans, he also benefits from lower expectations. True, getting the economy up to 4% growth from a lower rate will be harder, and turning an economy around isn’t an overnight job. Still, if coming GDP reports aren’t great, he can continue to chalk it up to inheriting a loser, as he likes to say. And now he’s got a shred of evidence.

Federal Reserve: Losing

Janet Yellen Addresses Joint Economic Committee On State Of US Economy
WASHINGTON, DC – NOVEMBER 17: Federal Reserve Board Chairwoman Janet Yellen testifies before the Joint Economic Committee on Capitol Hill November 17, 2016 in Washington, DC. Yellen delivered testimony on the economic outlook for the U.S. during her testimony. (Photo by Win McNamee/Getty Images)Win McNamee Getty Images
Win McNamee Getty Images

The Federal Reserve is a loser because the weak economy will make it harder to raise interest rates as a means of fighting off inflation, which it hopes to keep at 2%. After raising its benchmark interest rate in December for the first time in a year, the Fed would ideally raise it at least three more times this year. But increasing the rate any further when the economy isn’t humming along could result in lagging job growth. Add in the uncertainty about what Trump will do to try boost the economy and how his plans will play out, and the Fed has a tricky road ahead, at least in the short term. In two weeks Trump is expected to unveil his budget proposals, at which point part of the puzzle will become a little clearer.

Retailers: Losing

Retailers Offer Deep Discounts On Annual Black Friday Shopping Day
Consumers are expected to be the shining star of third-quarter GDP numbers.Photograph by Kena Betancur—Getty Images
Photograph by Kena Betancur—Getty Images

Retailers were also losers. Growth in consumer spending, which makes up more than two-thirds of the economy, slowed to 2.5%, down from 3% and 4.3% during the previous two quarters, respectively. One possible theory for the slowdown, posited by DoubleLine Capital founder Jeff Gundlach, is that shoppers have gone into a “Hillary depression.” In the immediate aftermath of the election many Americans were in a state of shock and despair, typically two states of mind that aren’t conducive to spending cash freely. Things may heat up again this quarter. Trump’s vow to ramp up the economy has gotten many in the business world across the nation excited, as evidenced by the stock market’s recent all-time highs and soaring consumer and business confidence.

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