RUTHFULLY YOURS

A year after the Obama economists left town, stagnation may be following them back to Harvard. The Commerce Department announced Friday that the U.S. economy grew 2.6% in the fourth quarter of 2017, below what most economists expected but the third straight quarter of solid growth.

The details of the GDP report were stronger than the top line that was reduced by the volatile categories of trade and inventories. A fall in inventories accounted for most of the decline in growth from the third quarter, but inventories ebb and flow and the measure will rebound in future quarters. Exports rose more slowly (6.9%) than imports (13.9%), which reduced the trade contribution to GDP.

Consumer spending rose a healthy 3.8% in the quarter, while business nonresidential investment climbed 6.8%. The latter continues the trend during 2017 of rising capital spending, which underperformed across the Obama years. It’s not too much to say that capital was on strike as CEOs and small-business owners tried to avoid becoming a target of new taxes or Obama regulators.

Growth for all of 2017 came in at 2.3%, mainly due to the slow first quarter of 1.2%. But the middle two quarters rose above 3%, and the faster growth momentum continued into the fourth. All of this took place before Congress passed tax reform in late December, and the fourth-quarter dip shows how important the tax reform is to maintain growth momentum in 2018 and beyond.

The rapid corporate response to reform has surprised even many of its most ardent supporters. FedEx on Friday became the latest company to commit to major new spending and wage increases in the wake of tax reform. The giant package shipper will spend $1.5 billion to expand its hub in Indianapolis and modernize its home-base hub in Memphis. It will also spend $200 million in raises for employees, most of it for hourly workers, and another $1.5 billion for employee pensions.

Americans for Tax Reform is keeping a tally of companies making new commitments, and the number as of midafternoon Friday was 263. At least three million Americans are receiving bonuses in the wake of tax reform, which are separate from wage or benefit increases. (It’s good that Republicans ignored Americans for Tax Reform’s president Grover Norquist’s apologia for a stealth tax rate of 45.6% on certain taxpayers in the original House bill and instead cut the top marginal rate to 37%.)

The buoyant business mood even extended to Davos, Switzerland, this week, where CEOs like J.P Morgan’s Jamie Dimon praised a more “competitive tax system.” Mr. Dimon said he wouldn’t be surprised if the U.S. economy grew 4% this year, which hasn’t happened since 2000. The economy hasn’t grown by even 3% since 2005. Even Lloyd Blankfein, the Goldman Sachs CEO, said in Davos that while he has some problems with Donald Trump, he likes the results of the President’s economic policies. Mr. Blankfein had better stay away from Manhattan dinner parties for a few weeks.

Faster growth isn’t preordained, and there are risks to the 2018 outlook from trade policy, widespread labor shortages and monetary policy if it misses signals about rising prices. This week featured threats from all of those corners: washing-machine and solar-cell tariffs, polarized immigration politics, and a Treasury declaration that a weak dollar is good for the U.S. The good news is that both Mr. Trump and Treasury Secretary Steve Mnuchin walked back the weak-dollar talk later in the week.

But the point is that economic policies matter. The growth rebound in 2017 shows that secular stagnation isn’t destiny; it was the result of policy choices by the previous Administration. The Obama Democrats put income redistribution ahead of growth and got more inequality and less growth. Mr. Trump and the GOP Congress have made growth a priority, and that’s where they need to keep their focus if they want to keep the expansion going.