OBAMA'S ECONOMY VS TRUMP'S ECONOMY

…How one cartoonist said it all

More proof that Trump is running on Obama’s efforts

Ok, as usual, it’s again time to put some truth into what is real versus what we are being offered by our current president.

In the following, I will compare what President Obama did versus what Trump takes credit for and overall, what is real.

Let’s start with one falsehood that Trump continues to repeat: “We’ve accomplished an economic turnaround of historic proportions.”  Trump was automatically award two Pinocchio’s for this as anyone who gives sole credit to any president for economic improvements automatically gets two Pinocchio’s.  And that’s because the US economy is highly complex, and the decisions of companies and consumers often loom much larger than any acts of government.

Trump claims that every time he meets a foreign leader, they congratulate him on “the incredible job he’s done with the United States economy.” He falsely claimed he’s created the “best economy in US history” nearly 50 times in three months, earning three Pinocchio’s in the process.

In addition, as President Obama said in a speech on September 7, 2018: “When you hear how great the economy’s doing right now, let’s just remember when this recovery started. I mean, I’m glad it’s continued, but when you hear about this economic miracle that’s been going on, when the job numbers come out, monthly job numbers, suddenly Republicans are saying it’s a miracle. I have to kind of remind them, actually, those job numbers are the same as they were in 2015 and 2016.”

Trump regularly and incorrectly brags he’s added 4 million jobs since taking office. Regular readers will remember the president was given two Pinocchio’s for claiming that he created 1 million jobs about six months into his term.

The media has previously compared US economic performance under Obama and under Trump during Trump’s first year in office. But overseeing a strong economy is not the same as accomplishing a “turnaround.” How can Trump take credit when the trends started well before Trump took office?

According to the Bureau of Labor Statistics (BLS), the US economy added 2,188,000 jobs in 2017 — Trump’s first year in office. So far, it’s added 1,306,000 jobs in 2018. But the economy added more jobs in every year of Obama’s second term than it did in Trump’s first year. This holds true when examining the average number of jobs added per month.

Eight Economic Factors To Watch:

Unemployment Rate

The unemployment rate is the best it has been in a decade, holding steady at 3.9% in August. Shortly after Trump took office in February 2017, the unemployment rate was 4.7%. It has declined at a faster pace than the Congressional Budget Office (CBO) predicted at the beginning of Trump’s term, but the unemployment rate had already stabilized. It was ranging between 4.6 and 5% starting in August 2015. That represents over a five-point decline since unemployment peaked at 10% in October 2009, nine months after Obama took office.

During the campaign, Trump argued this 10% measure was “totally fiction,” and he said it was much higher.  But that statement earned him Four Pinocchio’s. He often added those people who had totally given up looking for work, to back up his claim.

Employment in Population (25-54)

Another indicator of economic growth is the percentage of people employed during their “prime working years”. In December 2009, right before the end of Obama’s first year in office, just 74.8% of adults between 25 and 54 were employed. The years 2010 and 2011 marked the indicator’s low points, averaging 75.1% each year. But by the time Obama left office, that yearly average had rebounded to 77.9%. The ratio continued to climb through 2017, averaging 78.6% for the year. 

Stock Market

During the 2016 campaign, Trump said the stock market was “in a big, fat bubble that was ready to burst”.  However, stocks had been rising steadily since March 2009.  But once he took office, he was first to point out any record-setting days and of course, he took the credit. As previously noted, Trump regularly cites data from the Dow Jones industrial average, a collection of 30 US “blue chip” companies.  But the Standards & Poor’s 500 stock index provides a more nuanced data set.  Comparing the S&P's performance to similar markets, since just before Trump took office, the S&P 500 narrowly edged out Japan’s Nikkei 225 index for the largest percentage of overall growth, while the German and British markets declined. As of midyear, the Japanese and German markets had kept pace with the United States, but in recent months, the US stock market has posted gains that have put it ahead.

GDP growth

Over the course of Obama’s first year in office, GDP dropped 2.5%. In 2010, GDP growth recovered, surging 2.5%. Growth was already positive when Trump took office, jumping from 1.6% in 2016 to 2.2% in 2017.  Trump might point us to quarterly GDP growth. The economy is estimated to have gained 4.2% in the second quarter of 2018, but that still pales in comparison to the 5.1% and 4.9% growth in the second and third quarters of 2014 under Obama.

Still, Trump has beaten the expectations set by the Obama administration, which at the start of 2017 predicted growth of 2.4% in 2017 (fourth quarter to fourth quarter) and 2.3% in 2018. The big difference is Trump’s tax cuts and the huge spending bill he signed, which economists estimate added almost 1% in short-term GDP growth. Most forecasters did not raise long-run growth projection after passage of the tax cut; falling unemployment rates make it even more difficult to sustain economic growth at the current level.

Deficit-to-GDP ratio.

Another measure of an economy’s health is the deficit-to-GDP ratio. In other words, how much a country is earning versus how much it is spending. The ratio ballooned to 9.8% in 2009 when the recession was at it’s peak and the stimulus act was passed. By 2016, it had gone down to 3.1%. In Trump’s first year, it went up to 3.4%. That’s unusual because the economy is doing well, but it reflects the impact of Trump’s tax cut on government revenue. The increase in the federal deficit may make it hard for the government to respond to the next economic crisis. So if Trump is taking credit for the impact of the tax cut on economic growth, he needs to accept blame for the boost in the deficit.  But we know that will never happen.

Wages Growth

Wage growth is one of those instances where just because Trump repeats a statistic a lot doesn’t make it accurate. Trump earned Four Pinocchio’s for his claim that “wages are now, for the first time in many years, rising.”

Seven months after that, the conclusion is largely the same. Real median wages for all workers have been steadily increasing since 2014. In the last quarter of 2017, they plunged below their rate when Trump took office but have since recovered to about the same level. In other words, after an initial bump, wages are basically where Obama left them.

Poverty Rate

The poverty rate isn’t something that Trump claims as a turnaround…or that he talks much about anyway.  A recent report from the US Census Bureau shows the official poverty rate dropped 0.4 percentage points in 2017 to 12.3%. This marks the third consecutive annual decline, having fallen 2.5 points since 2014. Again, the trend that formed during Obama’s last years continued through Trump’s first.

And, as noted before, scholars increasingly believe that the official poverty estimate is a bit misleading and not especially informative. This is because payments, like the Earned Income Tax Credit or food stamps, are not recorded as income, so their impact isn’t incorporated into the official figure. 

Trump has, however, started to brag about the number of people coming off food stamps, as shorthand for people getting back to work and out of poverty.  But the experts say the decline isn’t entirely due to better economic times.  Many states have rolled back waivers that relaxed work requirements during the recession and allowed people to collect benefits for longer periods of time. There have also been reports that undocumented immigrants with children who are American citizens have stopped applying for federal assistance for fear of ICE and Trump’s strict immigration policies.

Business Investment

Business investment plunged to a low in the fourth quarter of 2015, but it rebounded to 2010 levels by the time Trump took office. It has continued to climb, gaining 2.6 percentage points, but that tracks with the upward momentum that started at the end of Obama’s term. 

In 2017, however, the pickup was entirely in the oil and gas sector and related to rising oil prices, just as the slow investment growth in 2015 and 2016 was just in oil/gas and related to low oil prices. In 2018, the pickup has been more widespread.  But as with stock prices, business investment has spiked all around the world.

Conclusion

Many of the eight factors above tell a common story: the start of Trump’s economy follows the trend set by the last years of Obama’s economy.  Trump’s policy changes need to be watched, from tariffs to taxes, and into the US and global markets, but as of now, Trump is still working off the base that Obama built.

As has been stated, before anyone gives sole credit to a president for economic gains, they will receive an automatic two Pinocchio’s, and Trump’s claim of a historic turnaround is worthy of even more Pinocchio’s.  The historical books are going to view the actions taken in 2008 and 2009 by George W. Bush and Obama, and the Federal Reserve, as pivotal to saving the US economy, not in what Trump has done.

Yes, Trump, has exceeded expectations on jobs and economic growth that were in place at the start of 2017. That’s due in part because of his tax cut, but also because of factors well beyond his control, such as the base that Obama's administration created and the overall increase in oil prices.

The real test will be whether the current trajectory under President Trump is actually sustainable.

Only time will tell.

Copyright G.Ater  2018