The Trump Economy is looking a lot like the Obama Recovery.
Just last week, addressing the world’s economic elite in Davos, Switzerland, the president claimed, “The United States is in the midst of an economic boom the likes of which the world has never seen before.”
The problem is, growth statistics just don’t show it.
In the third quarter of 2019, the economy grew at 2.1%, not the 3, 4, even 5% the president promised from his tax cuts and deregulation. On both a quarterly and annual basis, the Trump Economy has not yet exceeded the best quarters of the Obama years, although Trump’s 2018 yearly growth of 2.9% is tied with Obama’s 2015 figure.
On Thursday, the government releases gross domestic product figures for the fourth quarter and the full year of 2019, and economists have been downgrading their expectations.
For the fourth quarter, Bank of America forecasts GDP at 2%, JP Morgan Chase trimmed its estimate to 1.5%, and the Federal Reserve Bank of Atlanta recently lowered its estimate to 1.8%.
More than 36 months into the Trump Administration, the economy is performing just fine but has not been able to sustain the super-charged economic growth the president promised.
So what happened? The president portrayed his 2017 tax cuts for business as rocket fuel on an already strong economy. And indeed, in the third and fourth quarters in 2017, GDP topped 3%. (And again in the second quarter of 2018 and the first quarter of last year.) But those lower tax rates generated piles of cash for companies who shelled out record amounts in stock buybacks to shareholders. The initial burst of corporate spending into the economy has begun to fade, and it is now confident consumers, not companies, driving GDP growth.
The sugar rush from tax cuts is fading just as new challenges emerge.
“Looking ahead, we expect GDP to slow markedly in Q1,” the economists at High Frequency Economics wrote to clients, citing Boeing’s decision to halt 737 Max production in January.
Treasury Secretary Steven Mnuchin has acknowledged that Boeing’s Max crisis will ding economic growth, maybe as much as half-a-percentage point this year. And now the coronavirus outbreak is a new uncertainty.
At the same time, the Trump Economy is setting milestones you likely won’t hear the president brag about.
The economy is growing, but not strongly enough to compensate for those tax cuts and a huge two-year spending bill. The Congressional Budget Office forecasts $1 trillion-plus budget deficits for the next decade and a national debt topping $31 trillion. The ratio of debt to economic output will reach 98% by 2030 – the highest since World War II.
As a candidate, Trump told the Washington Post he would eliminate the national debt in eight years. And before he ran for office, he decried budget deficits and said no member of Congress should be re-elected amid deficits.
For three years, the president and his team have said that super-charged economic growth was the answer.
It just hasn’t happened.
It’s been said that presidents get too much credit and too much blame for what happens in the economy on their watch.
This president, of course, takes all the credit and none of the blame. The president told CNBC in Davos that the economy is truly growing at 4%, except for the Boeing crisis and the GM strike, and “storms” and “the rate” – rebranding the growth miss.
The president’s superlatives aside, US economic growth is solid, if not sizzling. The jobs market is strong with nearly 6.7 million jobs added in the first 35 months of the Trump Administration, trailing the nearly 8 million in the final 35 months of Obama’s tenure. Many economists expect wage growth to finally perk up this year and the jobless rate to stay near 50-year lows.