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Perhaps the main case for President Trump’s re-election is the health of the economy. He said in the 2018 State of the Union, “In just over 2 years since the election, we have launched an unprecedented economic boom — a boom that has rarely been seen before.” Well, the economy has been doing well, but hardly an “unprecedented economic boom.” Let us look at four important indicators: economic growth, employment, wages and manufacturing output.
Economic Growth. Let’s look at the data presented in the chart below. After a strong performance in 2014, economic growth plummeted between 2015 and 2016, but then began rising during the last two quarters of the Obama Administration and continued for the first six quarters of the Trump Administration (certainly the first half of that period was a continuation of the growth begun in the last year of Obama). However, since September of 2018 growth has slowed and was only 2.28% in the second quarter of this year. So a good performance, but hardly unprecedented.
Unemployment. What about unemployment? Trump is on stronger ground here. We are in a period of very low unemployment, as Trump says, “the lowest unemployment rate in 50 years.” But, as the figure below shows, unemployment has been trending down since 2010 with the end of the Great Recession. The trend line for the unemployment rate for the last six years of Obama and for the first three years of Trump are almost identical.
Wages. In one of the 2016 debates, then-candidate Donald Trump said, “We have to become competitive with the world. Our taxes are too high, our wages are too high. Everything is too high. We have to compete with other countries.” But on February 5, 2018, he said in his own inimitable style, “Something that I’ve been talking about for two years — campaigning, and everyone said, ‘You’ll never do it’ — after years of wage stagnation, wages — so what happened two days ago and a month ago — wages are now, for the first time in many years, rising. In fact, more companies are pursuing pay increases right now than at any time in the last long period of time — they actually say, ’in the 21st century.’ Can you imagine that? It’s amazing what people with some good ideas can do. It’s amazing what we’ve all done together.”
We need to add some clarity here. Are nominal wages (the wages people receive in their pay checks) rising or are real wages (the inflation-adjusted wages which reflect what people can buy)? If your wages are increasing by 10% but prices are increasing by 15%, your real wages are declining by 5% and you are worse off.
The next two charts show how nominal wages could be increasing while real wages are decreasing.
Manufacturing Output and Employment. Lastly, let’s take a look at manufacturing, which plays such a prominent role in our politics. We should note that manufacturing represents only about 1% of U.S. businesses, 10% of GDP and 11% of American workers. On August 3, 2018, the President tweeted, “Almost 500,000 Manufacturing Jobs created since I won the Election. Remember when my opponents were saying that we couldn’t create this type of job anymore. Wrong, in fact these are among our best and most important jobs!” However, things have recently changed (see chart below). The first three quarters of 2019 saw growth rates of manufacturing as -0.3%, -0.8% and 0.3% (for a tot
Conclusions
Despite all the rhetoric, we should note that the economy’s health largely depends on a number of factors that are out of the control of the President and the government. These factors include oil prices, slowdown of the world economy, the aging of the American population, technological change, etc. Presidents actually have little impact on the economy. We should be wary about praising or criticizing a president on the basis of how the economy is doing.
Nevertheless, we should note the following:
- The American economy has been growing since Trump was elected, but that growth rate has been declining.
- Unemployment is at a fifty-year low, but the trend line for unemployment is basically the same for the last years of the Obama Administration and the Trump Administration.
- Nominal wages are rising, but, more importantly, real wages are declining.
- After six quarters of manufacturing growth, 2019 has seen a retrenchment.
The next few posts will look into those elements of the economy which the President has more control over.
