Trump economy’s boom times are in the past
Bond market is tanking, while US businesses stay on the fence when it comes to new investments
Last spring, Donald Trump and the people around him probably thought they had a relatively clear path to reelection. On one side, it looked as if Trump had weathered the threat of politically fatal scandal.
The much-awaited Mueller report on Russian election intervention had landed with a dull thud; the details were damning, but it had basically no political impact. At the same time, Trump was convinced that he could run on the basis of a booming economy.
Never mind that his claims to have run up the best economic record in human history were easily refuted; the reality seemed good enough to sell as a big success story. What a difference a few months make. Everyone is following the impeachment story, and I don’t have much to add, except a warning: At every stage of this process, Republicans have proved willing to engage in stunningly bad behaviour.
Did anyone foresee the physical attempt to disrupt the House inquiry? The point is that as the net closes in, the GOP response is likely to be uglier than you can possibly imagine.
What’s getting less attention, understandably, is the way the Trump economic narrative is falling apart. To be fair, the overall state of the economy is still pretty good. Unemployment is very low and job growth is continuing.
And while there will eventually be a nationwide recession — the business cycle has not been abolished — it’s not at all clear that we’ll have one before next year’s election.
Already in some distress
However, important parts of the economy are lagging. Manufacturing production is down over the past year; combined with weakness in shipping and very hard times in agriculture, around a fifth of the economy is effectively in recession. In particular, manufacturing employment has been falling in Michigan, Wisconsin and Pennsylvania, states that chose Trump by tiny margins in 2016, giving him a win in the Electoral College despite losing the popular vote.
And overall growth, while still positive, is definitely slowing: “nowcasts”, which use partial data to estimate what official economic data will say when it’s eventually released, suggest an economy growing at an unimpressive annual rate of less than 2 per cent. Since elections turn more on the economy’s growth rate than on things like the level of unemployment — unemployment was still more than 7 per cent when Ronald Reagan won his 1984 landslide — this is not good news for Republicans.
Probably even more significant, there has been a dramatic decline, almost a collapse, in business confidence. You can see this collapse several ways. One is through surveys of business executives, who spent Trump’s first two years being very bullish, but have now become remarkably pessimistic.
You can also see it in the bond market, a much better indicator of economic expectations than the stock market. Long-term