So Far, There’s No Sign Of A ‘Trump Bump’ In The Economy
If you listened to the rhetoric coming from Donald Trump from the time he got into the race for President back in 2015 until the time he was elected, putting him in the Oval Office would be the key to restoring America from its allegedly declining economic state to the booming economy we all remember from the 1980s under President Reagan and the 1990s under President Clinton. When he entered the race, he made the claim that the country was in “terrible” economic shape and claimed that “the American dream is dead” in what remains the most bizarre campaign announcements in American history. It was an odd statement to make both because one usually expects American politicians to be positive and optimistic rather than dwelling on the negative. Even in the depths of the Great Depression and on the eve of a far-reaching war, for example, Franklin Roosevelt maintained a positive attitude that defined much of his Presidency. When he was campaigning for President in 1979 and 1980, Ronald Reagan still spoke of America as a ‘shining city on a hill,’ and optimistically looked toward a better future. Trump, on the other hand, campaigned largely on gloom, doom, and fear of the ‘other,’ whether that other was an immigrant from Mexico or a neighbor that happened to be Muslim. Notwithstanding the fact that the economy had been growing, albeit slowly, since 2009 and that unemployment was, slowly but surely, returning to the “full employment” levels we saw prior to the beginning of the Great Recession. In Donald Trump’s world, though, all was gloom and doom and only electing him would
In Donald Trump’s world, though, all was gloom and doom and only electing him would lead to a new era of prosperity. Not only would he bring back jobs that had gone overseas years ago, but he would bring about an economic boom unlike anything we’ve seen since the 1980s. At least initially, it seemed as though Wall Street agreed as stock prices went on an upward march starting on the day after the election that has only recently seemed to cool down. Now that we’re more than two months into Trump’s Presidency, though, there’s little sign that the economy is going to behave any differently than it did under President Obama:
Consumers are more confident. Stocks are up 5 percent since the start of the year. And from the president on down, there’s talk of a Trump bump.
The only problem: The boom is apparent everywhere except in the economic data.
It’s not that the economy is stalling — far from it. But with the first quarter ending Friday, growth in the first three months of the Trump administration is looking much the way it did under President Barack Obama.
In fact, experts see the gross domestic product in the quarter coming in at only about 1 percent, on an annualized basis — less than half the pace in the second half of 2016, and a far cry from President Trump’s own 4 percent target.
“There is a temporal disconnect,” said Ellen Zentner, chief United States economist at Morgan Stanley. “There has been an incredible rise in sentiment, but the proof is in the pudding later.”
Ms. Zentner expects growth of 1 percent this quarter, and considers recent data “solid,” but added that the big gap between expectations and reality “creates discomfort for economists and monetary policy makers.”
“The divergence is stunning,” she added, drawing a distinction between “soft data” like consumer confidence and “hard data” like retail sales.
The pattern continued this week, when the Conference Board reported on Tuesday that its index of consumer confidence in March rose to its highest since December 2000. More hard data is expected Friday, when the Commerce Department releases new figures on personal income and spending in February.
Wall Street, which surged in the months after Mr. Trump’s unexpected victory on hopes of tax cuts and deregulation, is coming to grips with the fact that at least in the short term, the outlook remains restrained. The Dow Jones industrial average has dropped on nine out of the last 10 trading days, the longest stretch of losses since 2011, albeit for a total decline of only 1.4 percent.
One quarter is only a snapshot, and official government data on the gross domestic product for the period will not be out for another month. What is more, the American economy is expected to pick up some speed later in the year, especially if the White House and Congress can agree on a package of promised tax cuts and new infrastructure spending.
The Federal Reserve raised interest rates this month and signaled two more rate increases later this year, indicating that the central bank is also in the faster-growth-around-the-corner camp.
Still, for all of 2017, the economy is expected to expand by roughly 2 percent, the rate of the recovery under Mr. Obama. The identical figures illustrate how much easier it is for a president to lift economic spirits, as opposed to actual growth rates.
If tax reform and other legislation in Washington suffer the same fate as the bid to roll back Mr. Obama’s health care overhaul did last week, Ms. Zentner said, the Trump bump “could be built like a house of cards that comes crumbling down.”
Part of the problem is that despite Mr. Trump’s Oval Office sessions with chief executives and the return of what the economist John Maynard Keynes termed “animal spirits,” corporate America is not investing heavily, at least so far, in new plants and equipment.
At the same time, demand in many industries is growing only modestly, while a few sectors like retail chains are having to make painful adaptations to a rapidly evolving consumer landscape.
There is still a chance that first-quarter growth could surprise the doubters. Although the widely followed GDPNow model of the Federal Reserve Bank of Atlanta calls for a 1 percent expansion rate in the first quarter, the New York Fed’s Nowcasting Report is looking at 3 percent growth.
“The difference is larger than usual and is being driven by the fact that the New York Fed incorporates soft data into its tracking,” said Ms. Zentner of Morgan Stanley.
The government’s estimate of gross domestic product is based on specific data points for economic factors like monthly retail sales, inventories, trade and other hard data, which also count more heavily in the Atlanta Fed’s model.
Whoever is right, most longer-term forecasts estimate growth for all of this year and 2018 to be in a range of 2 to 2.5 percent — again, largely in line with the pattern of the last eight years.
To be fair, it has only been two months since Trump has become President and the Administration has yet to even introduce any of its proposals regarding tax reform, spending, and other economic issues. At the same time, though, what the hard data does show us even in the minimal amount we have so far for the beginning of the Trump Presidency is that it’s far more likely that we’ll continue along the same economic path that we’ve been on since the Great Recession ended in 2009 than it is that we’ll see the kind of economic growth that Trump and many of his surrogates claim would result from his policies. Part of the reason for this is that we live in a country that is already fairly highly developed and it’s generally the case that such economies don’t see the kind of economic booms that emergent economies in places such as China are seeing. In fact, if we were seeing that kind of economic growth it would likely be a sign that the economy was becoming overheated and that we’re headed for another inflationary spiral that would do considerable harm to consumers and businesses alike. Additionally, the current economic recovery has gone on quite a long time and created patterns of it’s own. If we were going to see massive economic growth, it would have come at the beginning of the recovery, as we saw strong growth in the early 80s after the economy recovery from the “stagflation” that was the reality for much of the 1970s.
Time will tell what kind of economy we end up with after four or eight years or President Trump. Right now, though, it looks like it will be more of the same, which makes me wonder how Trump will explain that.