In the dark days of 2010, Paul Krugman was coining the phrase “confidence fairy,” to explain his doubt that promising Americans better fiscal policy would encourage them to increase their economic activity. He wrote snarkily about people encouraging spending cuts:
But don’t worry: spending cuts may hurt, but the confidence fairy will take away the pain. “The idea that austerity measures could trigger stagnation is incorrect,” declared Jean-Claude Trichet, the president of the European Central Bank, in a recent interview. Why? Because “confidence-inspiring policies will foster and not hamper economic recovery.”
Since November’s election, measures of American confidence have soared. The Trump administration is focused on measures helping business grow, including tax cuts and the elimination of regulations. With those confidence building measures on their minds, Americans have generated two quarters of GDP growth greater than 3% in a row. Not since the days of Quantitative Easing in 2014 has the economy been able to produce such growth. The Journal reports:
Households continue to step up spending as their spirits are boosted by low unemployment, low inflation and a booming stock market. And, perhaps more notably, businesses are shelling out more for long-term projects—like equipment and facility upgrades—this year after several years of caution.
Many economists project output will grow at a pace of between 2% and 3% in the current quarter. That would likely leave overall economic growth for 2017 above the 2% trend but below the 3% annual growth that President Donald Trump has pledged.
”Even with two major hurricanes making landfall in the United States, the economy made significant progress in the third quarter,” TD Economics economist James Marple said in a note to clients. “Outside of the areas directly impacted by the hurricanes, there are few signs of weakness in this report.”
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