U.S. Economy Faces a Painful Comedown from its 'Sugar High'

The approaching end of President Donald Trump’s first year in office, another very robust employment report and a still strong stock market make it appropriate to revisit my year-old judgment that the American economy is enjoying a sugar high.

Sadly, the best available evidence suggests that signs of market and economic strength are largely unrelated to government policy; that the drivers of this year’s strong performance are probably transient; and that the structural foundation of the US economy is weakening. In this sense sugar high remains the right diagnosis — and tax cuts very much the wrong prescription.

Growth in the fourth quarter looks likely to hit 2.3 per cent, marginally higher than the consensus just before the 2016 election. Expectations for next year are only marginally greater today than they were before Mr Trump’s victory. So there has been no substantial lift in the economy. In fact, the US has trailed the global economy as other countries, notably in Europe, have seen greater upward forecast revisions.