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Economic Reports Show US on Solid Footing as Tax Bill Signed Into Law

On Friday, the Bureau of Economic Analysis (BEA) reported personal income increased 0.3%, or $54 billion, in November. Disposable personal income (DPI) increased 0.4%, or $50.9 billion, and personal consumption expenditures (PCE) increased 0.6%, or $87.1 billion.

Real DPI increased 0.1% in November and Real PCE increased 0.4%. The PCE price index increased 0.2%. Excluding food and energy, the PCE price index increased 0.1%.

The increase in personal income in November primarily reflected increases in wages and salaries and personal interest income. The $49.1 billion increase in real PCE in November reflected an increase of $22.3 billion in spending for goods and a $27.6 billion increase in spending for services. Within goods, recreational goods and vehicles was the leading contributor to the increase, BEA noted. Within services, the largest contributor to the increase was spending for electricity and gas.

Kathleen Navin, director of Macroeconomic Advisers by IHS Markit, said, “We had expected a solid reading on real consumer spending growth in November, consistent with a strong report on November retail sales released earlier this month. Today’s report revealed an even stronger reading than we had anticipated, contributing to a one-tenth upward revision to our forecast of Q4 consumer spending growth to 3 percent. Also contributing to the upward revision was a stronger reading on growth of real consumer spending in September, which suggests more momentum heading into Q4.”

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Navin added that although personal income disappointed in November, “an upward revision to September suggests somewhat more support to consumer spending from income in the fourth quarter.”

BEA reported that personal outlays increased $91.7 billion in November. Personal saving was $426.2 billion in November and the personal saving rate, personal saving as a percentage of disposable personal income, was 2.9%.

On Thursday, the BEA reported that real gross domestic product (GDP) increased at an annual rate of 3.2% percent in the third quarter of 2017, following a 3.1% increase in GDP in the second quarter.

The BEA report said the increase in real GDP in the third quarter reflected positive contributions from personal consumption expenditures, private inventory investment, nonresidential fixed investment, exports, federal government spending, and state and local government spending that were partly offset by a negative contribution from residential fixed investment. Imports, which are a subtraction in the calculation of GDP, decreased.

Profits from current production–corporate profits with inventory valuation adjustment and capital consumption adjustment–increased $90.2 billion in the third quarter, compared with an increase of $14.4 billion in the second quarter.

Ben Herzon, senior economist at Macroeconomic Advisers by IHS Markit, said, “Third quarter GDP growth came in one-tenth shy of our past-quarter tracking, reflecting lower-than-expected figures for PCE and net exports. Nevertheless, the differences relative to our tracking estimates were slight, so we made no change to our forecast that GDP will rise at a 2.9% annual rate in the fourth quarter.”

Meanwhile, retailers continued to hold the tax bill and its cuts to corporate rates and potential for lowering taxes for much of the population as a bellwether for growth.

“This is landmark legislation that will boost our nation’s economy more than anything we have seen in decades,” said Matthew Shay, president and chief executive officer of the National Retail Federation. “Retailers are winners under tax reform since our industry receives few of the tax breaks that benefit other sectors of the economy and pay the highest effective tax rate of any industry. Lower taxes will help us grow our businesses and offer our customers better value. But the biggest benefit for retailers will come as lower taxes and increased global competitiveness help U.S. companies throughout the economy put more Americans to work and pay them higher wages.”

[Read more about the tax bill: Controversial Tax Bill Wins Retail Support but Could Raise WTO Ire]

The bill permanently sets corporate taxes at 21 percent, instead of the current rate of 35 percent. The bill also temporarily lowers individual tax rates, decreases the inheritance tax and increases the child tax credit.

NRF analysis shows that cutting the corporate tax rate will save large businesses enough to create between 500,000 and 1.5 million jobs while reducing taxes for “pass throughs” will benefit the small retailers that make up 95 percent of the industry.

The Urban-Brookings Tax Policy Center, which provide independent analyses of tax issues, said the bill would reduce taxes on average for all income groups. In general, higher income households receive larger average tax cuts as a percentage of after-tax income, with the largest cuts as a share of income going to taxpayers in the 95th to 99th percentiles of the income distribution, the center said.

However, the center’s analysis said, “On average, in 2027 taxes would change little for lower- and middle-income groups and decrease for higher-income groups. Compared to current law, 5 percent of taxpayers would pay more tax in 2018, 9 percent in 2025 and 53 percent in 2027.”