Monday 14 October 2019

America is booming - and Trump is determined to take all the credit

Wave of support: American President Donald Trump is benefiting from a strong economy and a high happiness index. Photo: REUTERS/Kevin Lamarque
Wave of support: American President Donald Trump is benefiting from a strong economy and a high happiness index. Photo: REUTERS/Kevin Lamarque

Christopher Condon and Steve Matthews

The US economy, which is about to break records for the longest expansion, looks like an asset for a president gearing up to seek re-election.

"If voters went to the ballot box today, it would be the strongest economy in US election history," said Justin Waring, an investment strategist at UBS in New York.

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Unemployment is close to a half-century low and inflation is so subdued some have pronounced it dead.

The two gauges added together are known as the "misery index". Mr Waring, who has crunched those numbers, says they show Americans are less miserable than they've ever been.

Which is exactly what US President Donald Trump's been telling them. Mr Trump is taking credit for the economy's performance, and he's getting strong approval ratings on the issue right now.

That doesn't mean it will automatically carry him to a second term. Other issues energise voters too, while the decade-long run of economic growth could come to an end before election day, still more than a year off.

Smell of success: Boxes of garlic are stacked in Gilroy, California, an industry which is benefiting from higher tariffs imposed on cheaper Chinese produce. Photo: David Paul Morris/Bloomberg
Smell of success: Boxes of garlic are stacked in Gilroy, California, an industry which is benefiting from higher tariffs imposed on cheaper Chinese produce. Photo: David Paul Morris/Bloomberg

And even if it doesn't, there are reasons why this expansion may lack oomph at the ballot box - as the Democrats found in 2016.

For starters, the rate of growth has been dismal.

The current expansion is about to become the longest ever, but the average growth rate is among the slowest.

In the decade through to March 2019, output increased a total of 25pc. Look at all the possible 10-year periods since World War WII, even the ones that include recessions, and four-fifths of them posted better numbers.

Workers' pay cheques have also been growing slowly by past standards, and the portion of the national income that goes to wage-earners - known as the labour share - hasn't recovered from the historic lows it reached after the financial crisis.

Mr Trump likes to point out the economy has accelerated on his watch. And economists do credit the president's policies -lower taxes, plus an increase in government spending agreed with Congress - for faster growth rates starting in 2018.

The question is: Can it last? The administration predicts the economy can keep expanding at 3pc.

But at the Federal Reserve, for example, none of the 17 policy makers expect growth next year to be faster than 2.2pc.

Sceptics say Trump has engineered a government-led sugar rush - loosening the purse strings and saddling America with bigger budget deficits without delivering the promised surge in business investment that would translate into lasting gains.

Tax cuts "provided a temporary boost to growth that is already fading", said Mark Zandi, chief economist at Moody's Analytics. "There's been no increase in long-term trend growth."

A number of economists disagree.

Stephen Stanley at Amherst Pierpont Securities says Mr Trump's tax breaks for business, plus his bonfire of red tape, have meaningfully increased the economy's capacity to grow in the long run.

But he acknowledges that the jury will still be out on that question when voters go to the polls next year.

Mr Trump's trade war with China, which most economists say is a near-term threat to US growth, is another likely campaign issue in 2020. Joe Biden, vice president in the Obama administration and the early frontrunner among Democrats, has attacked Mr Trump for hurting American business with his erratic use of tariffs. Mr Trump inherited a strong economy, Mr Biden told a rally in Philadelphia last month, and "just like everything else he's been given in his life, he's in the process of squandering that".

Still, many Democrats agree on the need for a tough approach to China. And Mr Stanley says there's plenty of time for the president to resolve the dispute in a way that will give the economy - and his re-election prospects - a big boost. "If the administration is able to deliver any kind of deal with China, that is going to be a major push for the campaign," he said.

Companies have put plans on hold amid the trade uncertainty, so there's "a lot of pent-up investment demand".

Another angle of attack for Mr Trump's challengers is inequality. Economic growth numbers are aggregates, and say nothing about who benefited.

Democrats to Mr Biden's left, like Senators Bernie Sanders and Elizabeth Warren, are especially vocal in arguing too many Americans have been left out of the recovery. Most economists say Mr Trump's tax cuts were skewed toward the rich. But the uneven distribution of income was already a feature of the expansion when Barack Obama was president.

That continuity is true for many of the more upbeat trends in the economy too - like the jobs numbers often celebrated by Mr Trump.

The decline in unemployment hardly seemed to alter with the change in president, although Trump supporters point out that it's gone on for longer than many economists thought was possible. In the end, some analysts say, the main reason why this expansion has lasted so long isn't due to policies under either administration. It's simply a function of the severity of the recession that hit the US between 2007 and 2009.

That's the view of Jeffrey Frankel.

A Harvard professor, he's also a member of the committee at the National Bureau of Economic Research that rules on when recessions began and ended - providing the official dating for American business cycles.

After the financial crisis, he said, "the economy had fallen so far below its potential that it took many years to climb its way out of the hole".

Bloomberg

Irish Independent

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