Introduction
A statement I have often heard from Trump supporters is “Trump has been good for the economy”. That statement may have an element of truth in some parts of the country but overall, I strongly disagree with that statement. I have made use of readily available, credible information from the internet to come to a conclusion on Trump’s impact to date on:
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Unemployment Rate;
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Manufacturing Employment;
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S&P 500;
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Real GDP;
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Federal Debt Owed to Public as a Share of GDP;
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Consumer Price Index.
Conclusion: It seems quite obvious from the available data and analyses that Trump has not been good (or bad) for the economy since taking office January 20, 2017. The economic health of the country has been on an upward trend since the recovery from “the great recession” began in 2009. Trump has not done any more than not reverse that positive trend.
The long term effects of Trump’s tax cuts and trade wars will take years to accumulate and no attempt is made in this synopsis to predict the future.
All of my data sources are hot-linked as data source.
What’s An Economy?
The origin of the word economy is from ancient Greek for “household” and “manage”. A working definition is provided by Investopedia.
“An economy is the large set of inter-related production and consumption activities that aid in determining how scarce resources are allocated. The production and consumption of goods and services are used to fulfill the needs of those living and operating within the economy, which is also referred to as an economic system.“
There is no single measure of an economy. A fairly extensive list of top-level, 10-year comparisons of measures of interest for our economy is provided in the following table. This is from a very well referenced Bloomberg article which also provides useful analyses of several of these measures/comparisons.
Admittedly, a thorough analysis of the question of Trump’s impact on our economy would require detailed analysis of at least each of the items in the Bloomberg table. However, it seems to me examining a few of the more important items would probably address the statement, “Trump has been good for the economy” in enough detail to reach a rational conclusion without becoming too tedious to read or remember.
The staff of the American Association of Individual Investors has produced The Top 10 Economic Indicators: What to Watch and Why to help investors gauge the health of the economy and forecast or understand forecasts of future economic activity. There is some overlap with the Bloomberg analyses and I have added the Consumer Price Index from the AAII list and substituted Real GDP for US GDP to complete the list of economic measures I examined to support my conclusion that Trump has had little impact on the economy.
My list of key economic measures:
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Unemployment Rate
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Manufacturing Employment
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S&P 500
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Real GDP
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Federal Debt Owed to Public As a Share of GDP
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Consumer Price Index
Unemployment Rate
The Bureau of Labor Statistics (BLS) collects a wealth of information on several important economic measurements every month. The following is a brief discussion of the employment terms that anyone interested in the subject should know and was taken from the BLS publication Labor Force Statistics from the Current Population Survey
“The basic concepts involved in identifying the employed and unemployed are quite simple:
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People with jobs are employed.
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People who are jobless, looking for a job, and available for work are unemployed.
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The labor force is made up of the employed and the unemployed.
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People who are neither employed nor unemployed are not in the labor force.
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National unemployment rate reflects the number of unemployed people as a percentage of the labor force.”
The civilian unemployment rate has been more or less steadily declining since shortly after Obama took office as shown by the following Bureau of Labor Statistics chart.
Where civilian unemployment Includes all persons 16 years of age and older residing in the 50 states and the District of Columbia and who do not live in institutions (for example, correctional facilities, long-term care hospitals, and nursing homes) or are not on active duty in the Armed Forces. And Seasonal adjustment attempts to measure and remove the influences of predictable seasonal patterns.
Conclusion: There is nothing in the Unemployment Rate to suggest any positive or negative impact as a result of Trump’s presidency. If anything, it would appear the unemployment rate is beginning to “flatten out”.
Manufacturing Employment
The manufacturing employment for the years January 2009 through July 2019 is shown in this graph from the Bureau of Labor Statistics. The data shows a mostly positive trend from about January of 2010 through the present although it was relatively flat during the last two years of Obama’s presidency but resumed a positive trend in Trump’s first two years in office before resuming a positive trend in 2017. It does appear to be flattening out again as of the start of this year.
Manufacturing employment has shown a modest rise of ~1.4 million over the last 9 years but the total is still well below the peak manufacturing employment of 1979-1980 as shown in this graph also from the Bureau of Labor Statistics.
The reasons for the dramatic decrease are many and have been widely discussed but I think the Bureau of Labor Statistics paper “The fall of employment in the manufacturing sector” provides a reasonably complete and succinct analysis.
Conclusion: There is nothing in the Manufacturing Employment data to suggest any especially positive or negative overall impact as a result of Trump’s presidency.
S&P 500
A good definition of S&P 500 and discussion of how the data is developed is provided by Investopedia:
“The S&P 500 or Standard & Poor's 500 Index is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies. The index is widely regarded as the best gauge of large-cap U.S. equities.”
The S&P 500 has undergone robust and steady growth since the low point caused by the recession near the beginning of Obama’s term in office in 2008. This is shown by a graph of inflation-adjusted S&P 500 closing prices current to 8/16/19 taken from Macro Trends.
Conclusion: There is nothing in the S&P 500 data to suggest Trump’s policies have materially increased the S&P 500 index positive trend established during the Obama administration. In fact, although the overall trend does appear to remain positive during Trump’s presidency, that period is marked by higher than usual instability.
Real GDP
Investopedia defines Real GDP as:
“Real gross domestic product (GDP) is an inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year, expressed in base-year prices, and is often referred to as "constant-price," "inflation-corrected" GDP or "constant dollar GDP." Unlike nominal GDP, real GDP can account for changes in price level and provide a more accurate figure of economic growth.”
The following graph of real GDP as measured in chained 2012 dollars to account for inflation was taken from data provided by the Bureau of Economic Analysis (BEA).
The data shows that real GDP has increased pretty steadily from 2009 to the present except for the disturbance caused by the “Great Recession”.
Conclusion: There is no data to support any conclusion Trump has impacted Real GDP either positively or negatively.
Federal Debt (Owed to Public as a share of GDP)
The US Treasury does not use the term National Debt in its databases. The terms of interest are:
“The term national debt refers to direct liabilities of the United States Government. There are several different concepts of debt that are at various times used to refer to the national debt:
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Public debt is defined as public debt securities issued by the U.S. Treasury. U. S. Treasury securities primarily consist of marketable Treasury securities (i.e., bills, notes, and bonds), savings bonds and special securities issued to state and local governments. A portion is debt held by the public and a portion is debt held by government accounts.
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Debt held by the public excludes the portion of the debt that is held by government accounts.
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Gross federal debt is made up of public debt securities and a small amount of securities issued by government agencies.
Debt held by the public is the most meaningful of these concepts and measures the cumulative amount outstanding that the government has borrowed to finance deficits.”
The total public debt outstanding as of 8/15/19 was $22.385 Trillion and the corresponding debt held by the public was $16.491 Trillion according to the US Treasury Department.
The web site US Government Debt was used to retrieve and graph data sets extracted from the US Treasury Department for Gross Public Debt and Federal Deficits.
The think tank Committee for a Responsible Federal Budget did an analysis in 2017 and produced the following chart which shows two things of interest to me: monetized public debt is that held by the Federal Reserve, and China holds a small part of public debt in contrast to the popularly held notion China holds a much larger portion.
A good discussion of how and why the Federal Reserve came to hold so much public debt can be found at How the Fed Monetizes the U.S. Debt.
Like household budgets, federal deficits are the result of expenses exceeding revenues and the deficits for the years from the end of the last recession to the present are shown here:
and are discussed by US Government Debt as follows:
"Federal Deficits rocketed from 1.1 percent of GDP in 2007 to 9.8 percent of GDP in 2009 as a result of the Great Recession of 2006-2008. The bank bailouts under the TARP program (begun at the end of the George W. Bush’s final term in office) accounted for almost half of the 2009 deficit. After the Crash of 2008 was over the federal deficits started decreasing, getting to 4 percent of GDP in FY 2013 and 2.4 percent of GDP in FY 2015, but increasing again in FY 2016 and reaching 3.8 percent of GDP in FY 2018.”
While the deficit began to rise again in the last year of the Obama administration, the impact of the Trump tax cuts on the Federal Deficit and therefore the Public Debt is obvious.
Conclusion: It is clear that the downward trend of Federal Deficits and Gross Public Debt accomplished during the latter part of the Obama administration has been reversed during Trump’s administration. Cutting taxes without cutting expenses has obvious consequences.
Consumer Price Index (CPI)
The Bureau of Labor Statistics defines CPI as:
“ a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. User fees (such as water and sewer service) and sales and excise taxes paid by the consumer are also included. Income taxes and investment items (like stocks, bonds, and life insurance) are not included.”
The BLS document The Consumer Price Index (Updated 4-18-2019) clarifies the definition further:
“The CPI-U population, which covers about 88 percent of the U.S. population, covers households in all areas of the United States except people living in rural nonmetropolitan areas, in farm households, on military installations, in religious communities, and in institutions such as prisons and mental hospitals.”
A detailed description of the methodology and data used by the Bureau of Labor Statistics in developing the CPI can be found in The Consumer Price Index (Updated 4-18-2019). The data in the following graph was extracted from BLS CPI information.
Postscript
A friend reviewed the previous analysis and provided the following comments with which I fully agree.
"Historically, the genesis of debt-driven growth was 'trickle-down economics' which was invented by David Stockman (Reagan’s budget director). Reagan had asked Stockman to come up with a way to sell his tax cuts for the wealthiest Americans to the public. The idea of trickle-down economics was that the tax revenue lost from the tax cuts would be offset through increased spending by the wealthy people who benefitted from the cuts. However, after the DEFRA and TEFRA tax cuts were implemented, Stockman realized that these policies were a dismal failure and became a vocal critic of it!! While there was indeed an increase in economic growth, it was no greater than rate prior to DEFRA and TEFRA. It was determined later that the wealthy people did not increase their spending to make up for the lost tax revenue. Instead, they invested almost every penny of their tax savings … overseas!!
Despite the abject failure of trickle-down economics during the Reagan era, Bush 43 and now Trump are touting it as the way to grow the economy. It is ironic that even Republicans admit that the deficits resulting from Trump’s tax cuts are growing at an alarming rate although one moronic Republican senator (yes, I know it is a redundant label) is asserting that we have to wait 10 years before making any critical assessments of the changes to the tax laws because “things could turn around”!! (I don’t even know what that means!!)
This all leads me to the conclusion that like Reagan and Bush 43, Trump is bad for the economy for several reasons. The most compelling reason is that the loss in tax revenues (as a result of his tax cuts) combined with a dramatic surge in government spending has produced huge deficits ($1+ trillion). This will inevitably result in significantly higher debt service costs and will eventually hurt the capital markets where the government will be competing with companies for capital. (Of course, the government will always win this battle because it can afford to pay higher interest than any company!!) This fight for capital will stifle economic growth which will reduce tax revenues which will increase the deficit which will increase the national debt which will increase the debt service which will take more capital out of circulation which will further stifle economic growth and so on!!
Another reason that Trump, in particular, is bad for the economy is his imposition of tariffs on imported goods. Like it or not, the US is part of the global economy and we must adapt to that reality. If a widget can be made cheaper and better in another country, then we should shift the focus of our manufacturing to making high ticket price items (which is what Germany has done). Tariffs are a regressive tax on the consumer. As Republicans argue, increasing taxes will slow economic growth because it deprives taxpayers of money that they could be spending on goods and services. Tariffs are inherently inflationary because consumers are paying more for the exact same products they bought prior to the tariffs. Inflation also has a negative impact on the economy.
Saving the best for last, Trump is bad for the economy because his entire approach to domestic economics is based on short-term thinking. None of the policies that he has implemented are sustainable in the long-term and, in the interim, they will have caused irreparable harm to the economy. For example, none of the Trump administration economic projections take into account the possibility of a recession which is certain to happen. In a recession scenario, the deficit could easily reach $1.5 trillion while, at the same time, economic growth would be negative. No one in the Trump administration, including Munchkin, has offered up any contingency plan for such an occurrence."
Bob Ward
11/15/19