Trump’s US Economy – Is it really booming?

During his campaign trail, Trump promised:

“We’re going to win so much, you’re going to be so sick and tired of winning.”

As the midterms approach, he is now facing his first big test; are voters sick of winning, or sick of Trump?

At first glance the economy does seem to be surging:

  • Unemployment is at lows unseen for nearly 40 years
  • Stock markets remain close to record highs
  • Business confidence is up
  • Trade agreements are being rewritten
  • Wages are rising at their highest rate since 2009

According to Gallup, in September, 13% of US voters rated economic issues as their highest priority, equal to the number concerned about immigration.

A deeper dive into the US economy exposes some uncomfortable facts, however the headlines could be enough to propel the Republicans back into office.

Unemployment

The US unemployment rate hit 3.7% in September, its lowest rate since 1969. The US has now added jobs for 96 consecutive months, the longest streak of jobs growth since records began. The majority of those jobs were added under Barack Obama’s presidency.

US Unemployment under Trump and Obama

Wage growth has lagged behind jobs growth since the recession, suggesting that the types of jobs the US is adding are lower-waged.

October’s job report showed wages growing at an annual rate of 3.1%, the highest rate since 2009, but still well below the 4.2% average right before the 2001 recession.

Wage growth has been a consistent growth pattern for almost 8 years, of which Trump has been President for just two.

 

Stock markets

Under Trump’s presidency the Dow, S&P and Nasdaq have all hit record highs, growth fuelled by his $1.5tn tax breaks, deregulation and a buoyant global economy.

The Federal Reserve has recently stated it will raises rates, and subsequently stock markets are wobbling. China’s growth is stalling, Europe once more looks like it is heading for trouble, and a recession could be coming next year.

The top 10% of American households owned 84% of all stocks in 2016. That includes all the equities the bottom 90% hold in 401k retirement savings, university funds and other investments.

This means that whilst the stock market has performed very well, the benefit has gone disproportionately to the wealthy. If stock markets do fall, the bottom 90% are likely to feel it first as corporations trim staff to cut their costs to appease shareholders.

Trade

Back in March, Trump boasted that:

“Trade wars are good and easy to win.”

Canada and Mexico, the US’s largest trade partners behind China, are currently renegotiating with the US, however China is a different story – Relations appear to be worsening. Meanwhile the EU has taken its dispute to the World Trade Organization.

The one thing that a trade war does is increase uncertainty; Caterpillar warned earlier this month that Trump’s tariffs had raised its costs.

The US has entered a phase of protectionism, rather than free trade and in a climate where the next tweet can dictate policy it is a very risky place to do business.

Taxes

Trump’s $1.5tn tax break is the single largest policy achievement of his presidency – Most of the cuts however went to business and the rich and polling shows voters now trust Trump less on tax reform than they did before the bill was passed.

Trump has now proposed “a 10% tax cut for middle-income families … no business”. This proposal has not even entered congress, so it is difficult to assess its likelihood. The last tax cut helped push the Federal deficit to $1tn and surely the Republicans won’t want to raise it further. The new plan does seem to concede that Trump’s “bill for the middle class” hasn’t worked.

Undecided voters now need to come off the fence – It is too early to truly assess his performance on the economy, however By 2020 we will have a clearer assessment of Trump’s legacy and we will know who is really winning.

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