Investment was supposed to boom after the tax cut.

First-quarter economic growth exceeded even the most optimistic expectations, expanding at a 3.2% annualized rate. The Trump administration was quick to take credit for the continued strength in the U.S. economy.

At a rally in Green Bay, Wis., Saturday night, President Donald Trump again declared that his leadership and policies were delivering what he refers to as the best economy in history.

Kevin Hassett, chairman of the White House Council of Economic Advisers, got more specific.

The gross domestic product report confirms our view that the momentum from last year was not a sugar high but a serious response to long-run policies that have made the U.S. a more attractive place for business, Hassett told the Wall Street Journal on Friday.

Theres just one problem with Hassetts assessment.

The unexpected strength in the GDP report came from inventories, trade, and state and local government spending, not from business investment, which is where one would expect to see the response to the kind of long-run, supply-side policies Hassett implied.

Private final demand, which is known in the GDP report as final sales to private domestic purchasers and which should be the beneficiary of tax cuts and deregulation, rose an anemic 1.3%, the smallest increase in six years.

At the same time, net exports (exports minus imports) and inventories accounted for a combined 1.68 percentage points more than half of the first quarters GDP 3.2% growth and the largest contribution in six years.

So wheres the tax-cut-driven boost in capital expenditures?

Real nonresidential fixed investment business spending on structures, equipment and intellectual property rose at a 2.7% rate in the first quarter, half the fourth-quarter pace.

Yes, there were two back-to-back quarters of solid capex growth in 2018 following the enactment of the Tax Cuts and Jobs Act. Business fixed investment rose 11.7% in the first quarter of 2018 and 8.7% in the second before slumping to 2.5% in the third.

However, investment posted solid, back-to-back quarters in the middle of 2014 as well, with real GDP averaging 5%.

Also read: Manufacturers grow at slowest pace in April since Trump elected, ISM finds

Whats more, investment in structures posted a third consecutive quarterly decline in the first quarter, while spending on equipment rose a paltry 0.2%. A key barometer of future capital spending, new orders for nondefense capital goods excluding aircraft, has seen a deceleration in year-over-year growth since its recent peak in September 2017.

Also read: Construction spending tumbles in March as housing takes it on the chin

Meanwhile, housing, or residential investment, posted its fifth consecutive quarterly decline and seventh in the last eight quarters. Fixed investment, both residential and nonresidential, contributed a combined 0.27 percentage points to first-quarter growth. Not exactly a supply-side endorsement.

Mondays Outlook column in the Wall Street Journal begs to differ. The Supply Side of the Economy is Flashing Strength, reads the headline. The article by Jon Hilsenrath cites a consensus-estimate 2.3% jump in first-quarter productivity growth (which was reported on Thursday as a 3.6% increase) and nascent signs of a pick-up in labor-force growth.

That would certainly be welcome news. An aging population and a 15-year slump in productivity are limiting the economys capacity to expand without creating inflationary pressure. Faster potential GDP, of course, would mean that the economy can run hotter for longer without triggering a response from the Federal Reserve.

If you take the Fed at its word, policy makers would like to see a bit more price pressure after years of undershooting their 2% inflation target. It remains to be seen what will happen if and when inflation pierces that barrier and heads higher.

It is always possible that measured productivity growth will show a lagged response to technological innovation, as it did in the 1990s. Economist Robert Solow famously remarked in 1987 that you can see the computer age everywhere but in the productivity statistics.

As if on cue, productivity growth then exited its two-decade slump in the mid-1990s to exceed 3% over the next 10 years.

If you believe, as I do, that much of todays technology is distracting, addictive and productivity-sapping, then Solows prescience may not come to fruition anytime soon.

Now, the first quarters odd distribution of growth was probably a fluke, or just plain weird, as economist Douglas Holtz-Eakin, president of the American Action Forum, called it. The government shutdown in January may have dampened consumer spending and prompted businesses to delay planned investments. Strong retail sales in March support the idea of deferred consumer purchases.

In 2016, 2017, and 2018 the dominant source of growth was households and businesses, which had contributed more than 100% of growth on average, Holtz-Eakin writes. That compares with 43% of the growth in final sales in the first quarter.

Even a reversal of the first-quarters contributions to growth in the second quarter wouldnt settle the question of whether last years 3% GDP growth was a tax-cut-driven sugar high or a supply-side miracle.

It would take a consistent improvement in productivity growth from the 1.4% post-2004 average and sustained 3% growth in real GDP compared with the sub-2% estimate of potential, before we can extrapolate a new trend, not to mention a new normal.

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Investment boom? What investment boom? - MarketWatch