Trump keeps delivering on economy
Three years into his presidency, Donald Trump is finding it difficult to keep his campaign promises regarding the economy, but he’s doing pretty well.
Throughout 2016, the president declared he could easily lower unemployment, boost economic growth and smooth the way to reduce taxes and pay down debt.
Three years ago, I promised to benchmark his progress in fulfilling those promises. Here’s a look at the numbers; I’ll leave the politics to someone else.
Trump’s most significant successes are reducing unemployment and raising worker participation. All other U.S. economic success in the past year emanate from this important achievement.
The unemployment rate was 4.7 percent when Trump took office in 2017, and within a year, it dropped 4.1 percent. Going into the 2020 campaign, the Bureau of Labor Statistics reports an unemployment rate of 3.5 percent.
Most economists believed 4 percent constitut
ed full employment, but Trump has kept it at that level for almost two years now.
Trump ridiculed the top-line unemployment rate as misleading, when he was running for president, and he was right. A more important number is the percentage of people between the ages of 25 and 54 who are participating in the labor market.
By this measure, the Trump economy excels. The prime labor force participation rate has risen from 81.5 percent in January 2017 to 82.9 percent last month, according to the St. Louis Federal Reserve Bank. The all-time high participation rate was 84.6 percent in 1999.
These employment trends admittedly began in 2014, when the labor force participation rate bottomed out at 80.5 percent. But Trump has kept the jobs coming, and they are driving economic growth.
There is an asterisk. Full employment should drive up wages, but so far, they are barely exceeding the inflation rate. Most of the new jobs are low-paying, and the highest wage earners received most of the raises.
The labor market is also showing signs of petering out. Employers laid off 600,000 workers in 2019, the third-highest number of the decade, according to the Department of Labor.
Consistently growing the nation’s gross domestic product, a broad measure of economic activity that tracks the nation’s output of goods and services, has proven more difficult, however.
Trump promised Americans he could achieve GDP growth rates of between 4 percent and 6 percent. Serious economists and pundits like myself guffawed because that kind of growth is impossible in a mature economy with an aging population.
The United States achieved its highest real GDP growth rates during the Trump administration in the fourth quarter of 2017 and the second quarter of 2018. The seasonally adjusted, annualized growth rate was 3.5 percent in both quarters, according to the Bureau of Economic Analysis.
A note: The BEA has revised past estimates, which explains the discrepancy with last year’s column, in which I reported a rate of 4.2 percent.
Under Trump, the economy has grown at an average rate of 2.6 percent a year. While that is not what he promised, it is still strong by developednation standards.
Much of that growth came from Trump’s 2018 tax cuts, which overwhelmingly benefited the wealthiest Americans and sent stock indexes to alltime highs on higher earnings.
The tax stimulus, though, is wearing off. Business borrowing and investment dropped dramatically in 2019, mostly due to his tariffs on China.
The American Bankers Association on Thursday predicted growth of 1.9 percent in 2020, the group’s economists are optimistic businesses may increase investment in 2020 as trade tensions ease.
The economic growth from tax stimulus came with a cost. The federal debt has reached a remarkable 79 percent of annual GDP and is growing. Trump has signed $4.7 trillion in debt into law, according to the conservative Committee for a Responsible Federal Budget.
American voters, though, don’t seem to care. Both parties are happy to spend today and make their grandchildren pay it back through higher taxes after we’re dead.
If you happen to be a Trump supporter who believes tax cuts pay for themselves, let me introduce you to the Tooth Fairy. No tax cut has ever made up for lost revenues to a government.
Consumer spending, though, is strong thanks to high employment. What’s unclear is whether their enthusiasm will overcome the $800 per family tax that the tariffs will continue to levy on them, according to the New York Fed.
Should American voters base their votes on these statistics alone? Absolutely not. But these are the promises Trump made to the American people, and setting aside his trademark hyperbole, he’s produced results.
A strong economy is a strong predictor of whether an incumbent president will win re-election. Based on these results, Trump has a strong case for another four years in office.