Can a surg­ing econ­omy push Trump to the great­est come­back in his­tory?

Mo­men­tum ap­pears to be shift­ing: the pres­i­dent can and will boast of a record third-quar­ter re­cov­ery

The Daily Telegraph - Business - - Business Comment - Rus­sell lynch

Don­ald Trump shared his own novel the­ory on the ori­gins of coronaviru­s in a re­cent Min­nesota stump speech to sup­port­ers. For­get Wuhan lab­o­ra­to­ries, or 5G broad­band con­spir­a­cies: ac­cord­ing to the pres­i­dent, “God was test­ing me.”

A tongue-in-cheek (one as­sumes) Trump said the Almighty was pun­ish­ing him for his hubris in boast­ing about build­ing “the great­est econ­omy in the his­tory of the world”. So one pan­demic later “now I have to do it again”, he quipped.

Just four months ago, when Covid-19 put more than 20m Amer­i­cans out of work, the thought of Trump fight­ing Novem­ber’s elec­tion on the econ­omy seemed far­ci­cal. A proud pres­i­den­tial record, in­clud­ing an un­em­ploy­ment rate at a 50-year low of 3.5pc, was in tat­ters. A bru­tal April-June quar­ter saw the world’s big­gest econ­omy shrink a record 9.4pc.

But now that pic­ture is chang­ing. A look at the re­cent data sug­gests that the “Big Mo” beloved of US politi­cians is be­hind him. Sud­denly, the book­mak­ers are shav­ing their odds on the prop­erty mogul be­com­ing the first pres­i­dent since Calvin Coolidge al­most a cen­tury ago to win a sec­ond term in the teeth of a re­cent re­ces­sion.

Take hous­ing, for ex­am­ple. Even with un­em­ploy­ment at 10.2pc, the mon­e­tary stim­u­lus poured on by the Fed­eral Re­serve and gen­er­ous fi­nan­cial sup­port to house­holds has helped light a fire un­der the mar­ket. July saw a huge re­bound in con­struc­tion starts on new homes, jump­ing 22pc to an an­nu­alised pace of 1.5m dur­ing the month: that was well in ex­cess of ex­pec­ta­tions and the high­est since 2006, when the pre-fi­nan­cial cri­sis hous­ing bub­ble was just swelling to a peak.

Along­side that fil­lip, the num­ber of build­ing per­mits – a de­cent in­di­ca­tor of fu­ture de­mand – also rock­eted more than 18pc to 1.5m. Mean­while, sales of ex­ist­ing homes soared 25pc to hit 5.9m, wip­ing out all of the dam­age to the mar­ket in­flicted by Covid-19. No won­der con­fi­dence among house­builders has soared to its high­est level for more than 20 years. The fig­ures cer­tainly raised eye­brows among econ­o­mists, with Cap­i­tal Eco­nomics sug­gest­ing that the speed of the turn­around “is still some­thing of a sur­prise”. The con­struc­tion boom is such that the builders are even wor­ried that a lum­ber short­age could put the brakes on the hous­ing re­cov­ery af­ter pro­duc­tion was cut and pre-ex­ist­ing stock­piles wound down, more than dou­bling the price.

The shock of the pan­demic hasn’t crimped the US con­sumer ei­ther, helped out by those $1,200 (£900) gov­ern­ment cheques in the spring and $600-a-week ben­e­fit top-ups un­til last month. A third suc­ces­sive month of ris­ing re­tail spend­ing has left sales 2.5pc above the pre-Covid peak, at their high­est since records be­gan in 1992. Ad­mit­tedly, the 1.2pc ad­vance last month was the weak­est since the shut­down, but sales were still 2.7pc above the same month last year. Per­sonal con­sump­tion ac­counts for 70pc of the econ­omy and shop­pers are spend­ing more on­line, even though they are still avoid­ing bricks and mor­tar re­tail­ers and restau­rants for now.

Other signs of po­lit­i­cally use­ful mo­men­tum for Trump come from man­u­fac­tur­ers, which have re­couped some 60pc of out­put lost to Covid-19. Fi­nan­cial data firm IHS Markit’s snap­shot of man­u­fac­tur­ing and ser­vices ac­tiv­ity – al­beit less re­li­able due to the wild swings of the pan­demic – is now at an 18-month high, which sug­gests that com­pa­nies are shrug­ging off the wor­ry­ing jump in Covid-19 in­fec­tions seen in July.

Ox­ford Eco­nomics’ lat­est re­cov­ery tracker, which mon­i­tors a bas­ket of mea­sures from flights to steel pro­duc­tion and mort­gage ap­pli­ca­tions, in­di­cates a ma­jor­ity of US states show­ing re­cov­ery signs for the first time since April. Those in­clude Florida, a key swing state that the pres­i­dent will likely have to hang on to in or­der to win again in Novem­ber.

These signs of mo­men­tum will be borne out in the third quar­ter GDP es­ti­mates, due to land in the full heat of an elec­tion cam­paign in mid-Oc­to­ber and likely to show the US econ­omy surg­ing at an an­nu­alised rate of as much as 20pc. No mat­ter that the sec­ond-quar­ter de­cline was even steeper, or that in 2020 over­all the US econ­omy will shrink some 5pc: math­e­mat­ics alone means Trump can and will boast of a record per­for­mance for the econ­omy between July and Septem­ber.

That line of at­tack could prove fruit­ful against his Demo­crat ri­val Joe Bi­den, whose rope-a-dope elec­tion strat­egy thus far has been to sit back and say noth­ing as the pres­i­dent com­mit­ted blun­der af­ter blun­der in his early re­sponse to the pan­demic. That re­sponse won’t hold for much longer, though.

Democrats talked apoc­a­lyp­ti­cally at their con­ven­tion about Trump’s “sea­son of dark­ness” grip­ping Amer­ica. Trump, on the other hand, can turn to the Amer­i­can peo­ple, point to the data, and say “have you seen what the other guy is plan­ning to do on tax?”. Bi­den’s plans to par­tially undo the pres­i­dent’s tax cuts by lift­ing

‘De­spite 170,000 deaths, be­ing able to vac­ci­nate dur­ing a cam­paign would send a pow­er­ful mes­sage’

cor­po­ra­tion tax back to 28pc from 21pc can easily be painted as the act of a dan­ger­ous Left­ist with the po­ten­tial to un­der­mine a frag­ile re­cov­ery. The use of en­hanced ben­e­fits rather than a fur­lough scheme like the UK also plays into Trump’s hands elec­torally, as the US has al­ready had the worst of its news on un­em­ploy­ment, adding to the sense of mo­men­tum.

Re­la­tions with China are ar­guably the weak­est part of Trump’s eco­nomic legacy as a tar­iff war threw grit in the cogs of world trade and slowed the global econ­omy last year. But the pres­i­dent – not un­rea­son­ably – paints that as stick­ing up for Amer­i­can in­ter­ests: Bi­den has also been forced on to Trump ter­ri­tory here by pledg­ing to be tough on China. He’ll also get brick­bats on race but Trump can also point to higher weekly wages for blacks and His­pan­ics since he took of­fice.

His weak­est flank is Covid-19, but the pres­i­dent’s po­ten­tial move to rush through the ex­per­i­men­tal vac­cine de­vel­oped by Ox­ford Univer­sity and As­traZeneca for use in Oc­to­ber gives him the chance to cover it. De­spite 170,000 deaths, be­ing able to vac­ci­nate peo­ple dur­ing a cam­paign would send a pow­er­ful po­lit­i­cal mes­sage long af­ter all but the anoraks have for­got­ten his mus­ings about in­ject­ing bleach.

Of course, the polls are giv­ing him no chance. But they didn’t in 2016 when Hil­lary Clin­ton was ex­pected to walk into the White House. The thing about Don­ald Trump is that ev­ery­body – prac­ti­cally ev­ery­body – tends to un­der­es­ti­mate him ex­cept the man him­self.

Book­mak­ers are shav­ing their odds on Trump be­com­ing the first pres­i­dent in a cen­tury to win a sec­ond term af­ter a re­cent re­ces­sion

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