With the presidential elections in November looming ahead, President Trump’s term in the office is nearly over. This makes it a good time to analyze the actual performance of the U.S. economy vs. the statements he made on how it would perform. According to the estimates released by the U.S. Bureau of Economic Analysis, the GDP growth in the fourth quarter of 2019 was approximately 2.1%. This was the same as the previous quarter. As far as the GDP growth for the full-year is concerned, it actually declined when compared to 2018, from 2.9% to 2.3%.
This shows that the tax cuts that were made in 2018 were helpful for at least a year, but their effect didn’t carry over the next year, as expected. The President had promised that these tax cuts would end up paying for themselves, but this hasn’t happened as yet. The deficit in the Federal budget has ballooned to whopping levels of $1 trillion, something that has not been seen in a non-recessionary environment. The outlook indicated that the economy would be slowing down and so, the Fed decided to increase its balance sheet and lower the interest rates. This caused the stock market to rally last year, even though corporate profits didn’t increase and remained mostly flat.
Even though the U.S. and China have signed the Phase One trade deal, the outlook was already murky, long before the Wuhan coronavirus hit the world. The goals of the trade deal appear to be overly ambitious and the really difficult items on the agenda still remain unaddressed. Nonetheless, President Donald Trump has claimed repeatedly that the economy is doing much better than it was before. How true are his claims? Israel Figa explains why he might be good for the country:
Yearly GDP Growth
Trump set a 3% of higher growth in Gross Domestic Product (GDP) and this has not been achieved as yet. After all, he didn’t really do himself any favors when he started the trade wars with China. While the Phase One trade agreement that has been signed with China is certainly a move in the right direction, it does appear to be an overpromise, given the goals that had been agreed to. In the years of his term, GDP growth has exceeded 3% for a couple of quarters. However, when you consider it on a yearly basis, the GDP growth increased to 2.9% in 2018, the year the tax cuts decided by Trump took effect.
This growth fell back to 2.3% next year, which indicated that the tax cut had only been a sugar rush for one year. Trump had claimed that the economy would grow 4% to 5% during his time as President, but all progress that was made, has been essentially wiped off due to the Coronavirus that’s wreaking havoc in every part of the world.
As per Israel Figa, the unemployment rate is as low as it can go and this is certainly in favor of the country. The unemployment rate had reached its peak in 2009 at 10%, but in the last decade, it had reduced to 3.6%. In the last year or so, this rate has been bouncing back and forth from 3.5% to 3.7%. During his years in office, the unemployment rate was reduced by 1.2%, which is undoubtedly significant as it did wonders for the economy.
Yearly Job Growth
Under the Trump regime, there has been a job growth of under 2 million per year. The only exception was 2018 when tax cuts worked in favor of the job market and the number was higher. The number is still not disappointing, even though it didn’t come close to the 25 million jobs that Trump had claimed to add in over 10 years of entering office. Considering the current hiring rate, this looks like a stretch, but it could be due to the economy slowing down as a whole.
Manufacturing Job Growth
In the first two years of Trump in office, the manufacturing jobs had increased significantly, but their growth started slowing down in 2019. This decline was partially due to the ongoing trade wars of Trump with China, which had impacted not just the U.S. economy, but also the global economy as a whole. Growth had slowed down last year already and now the COVID-19 problem is doing all the damage.
Economists and market experts like Israel Figa had expected wage growth to strengthen in the past few years because the economy was recovering from the Great Recession. This did happen and wage growth has definitely gone up during Trump’s presidency. It did fall off a bit last year, but it has stuck at around 3%, which is not that low. If the novel coronavirus hadn’t caused a global economic shutdown, there was a possibility it could have improved.
Dow 30 Industrials
Perhaps, one of the biggest improvements that have been seen under Trump’s presidency is in the Dow 30 Industrials. According to experts like Israel Figa, the Dow 30 Industrials have risen by almost 10,000 points in Trump’s presidency or under 60% since he was elected. This is undoubtedly positive for a lot of Americans and it is the tax cuts that have helped the stock markets rise in the last three years.
In addition, the Federal Reserve has also kept interest rates low and they have flooded the market with cash, as they were also concerned about the growth rate of the economy. It has caused the federal budget deficit to increase, but is also the reason why valuation multiples have increased even though company profits remain flat.
When Obama took office, the U.S. economy had been in shambles and he had to make a lot of tough decisions to help the country recover. It took a long time for him to make it happen and by the time Trump took office, it had already begun. The economy has been improving since then and some decisions have helped it grow even further. The S&P 500 is a strong indicator of the economy and it is certainly telling a story. It has also risen, only slightly less in percentage terms as opposed to the Dow.
While the gains in the S&P 500 index is for the same reasons as the Dow, it should also be noted that companies that have a market cap of $1 trillion or above, have also had a huge influence over the index. This includes companies such as Amazon, Microsoft, Apple and Alphabet/Google. As per Israel Figa, similar to the Dow, the lowering of interest rates by the Fed and the inflow of cash in the market has pushed up the valuation levels of the company, even though their profits were more or less stagnant last year. In order to rise this year by a huge proportion, the markets will have to see earnings growth. But, this doesn’t seem likely due to the pandemic, something that was completely unexpected.
U.S. Federal Deficit Budget
The deficit in the Federal budget has increased and has exceeded $1 trillion. This marks a more than 68% increase in the deficit during Trump’s time in office and it is expected to go higher this year, understandably even more so due to the Coronavirus. This ballooning of the federal budget is in direct contrast of what Trump claimed. According to him, eliminating the Federal budget deficit and the Federal debt would be easy, but that is not how things worked out.
The amount of $1 trillion had already made it the largest deficit in history, with the exception of a recession. It was expected to reach $1.7 trillion till 2030, but things will go differently from now on. Once the COVID-19 worldwide crisis has been dealt with, there is a possibility that the budget deficit would top a whopping $2 trillion.
U.S. Trade Deficit
Obama spend eight years in office and during his time, the trade deficit had started at $384 billion in 2009. This was mostly due to the Great Recession. Nevertheless, the U.S. economy had made a quicker recovery, as compared to the rest of the world, because it reached $550 billion in 2011. During Trump’s presidency, the trade deficit had reached a hefty $600 billion. Thus, experts like Israel Figa state that Trump started the trade wars in order to try and increase this trade deficit as much as possible.
U.S. Goods Export to China
The third largest buyer of U.S. goods is China, after Canada and Mexico taking the first and second spot, respectively. The problem with the trade war that has been initiated by President Trump with China is that fewer goods are being sold to the country by U.S. companies and the farmers. Good exports to China peaked in 2017 when they reached $130 billion, but they have fallen by 18% to reach $107 billion in 2019, which is a reduction of $23 billion.
The group that has been hit the hardest by this issue comprises of soybean farmers because their exports to China have reduced by $20 billion in the last two years. This Phase One trade deal with China has some very ambitious goals when it comes to the country buying U.S. agricultural products. However, once again there are rumblings that due to the Wuhan coronavirus, these requirements would not be met.
It is a fact that a lot of the economic metrics indicate that there are striking similarities to the last few years of the Obama administration. But, financial and economic experts like Israel Figa have assessed that people seem to be better off financially than they were a few years ago. In fact, a number of surveys show that most people expect to do even better and that Americans are not as much worried about their financial situation or the economy as they were in the last presidential election. Upbeat and positive sentiment is of the utmost importance for the U.S. economy because it encourages consumer spending, which is undoubtedly the most important driver of the country’s economy growth.
People have acknowledged that the economy turned around during Obama’s time, but it cannot be denied that solid job gains, three years of steady growth and major stock market records during Trump’s time has made a difference. According to Israel Figa, it has brought about full-blown optimism amongst the people and people are giving Trump credit, even if the percentage varies. His approval rating was certainly high at the beginning of this year. 225,000 jobs were added in January this year, according to the Labor Department.
This number surpasses expert expectations and has worked in favor of President Trump. Moreover, a lot of workers have also felt better off, primarily because of cheaper gas prices, tax cuts and increases in minimum wage in more than 20 states. In recent months, there has also been a slight increase in wage growth for rank-and-file workers, even if it is not as stellar as it was in the 1990s. Job quantity is one of the biggest reasons behind increase on consumer confidence, as per Israel Figa. Confidence goes up when people start feeling that getting a job is easy, even if it doesn’t pay a lot.
There might have been a slowdown in job growth as compared to what it was under Obama’s tenure, but the labor market’s health is not something to be ignored. The unemployment rate is quite low and new jobs have been added to the market quite steadily in the last few years. The manufacturing sector was not very happy with President Trump earlier because his trade wars had become a threat to their profitability, but things seem to be getting under control once again and this is definitely a good sign because there is no longer such volatility and things are getting stable.