US economy: How strong is it?
| Washington
Presidents tout the good news on their watch, and President Trump has been talking up positive economic numbers. But how good are they? Here are some different ways of looking at the data.
Q: How good is the gross domestic product number?
The United States economy notched a 4.1 percent annualized growth rate for this year’s second quarter, according to a July 27 report by the US Bureau of Economic Analysis. That’s much faster than the roughly 2 percent that’s been typical since 2001. For the record, four other quarters since the Great Recession have had growth above 4 percent, but it hasn’t happened since 2014. Mr. Trump depicted the news as a sign that lighter taxes and regulation could boost growth above 3 percent for the whole year, which would be the fastest pace for any full calendar year since the Great Recession.
“These numbers are very, very sustainable. This isn’t a one-time shot,” he said the day the numbers were released. He pointed to a revival in business investment as a key reason.
Some reports since the GDP number was released have also shown signs of economic strength. Consumers kicked off the third quarter by pushing retail sales up 0.5 percent in July, the Commerce Department reported Aug. 15.
Q: How does the “Trump economy” compare with President Barack Obama’s record during his final year in office?
First, it’s important to note that a lot of factors influence the economy other than federal policy, and even on that, the president doesn’t call all the shots. But economists say the Trump tax cuts are fueling some extra economic activity by putting more money in family and business bank accounts.
With that said, here are some key economic benchmarks as of June, compared with those from the same month in 2016:
• Unemployment rate: 4 percent in June versus 4.9 percent in 2016.
• Jobs created in the previous 12 months: 2.37 million now versus 2.45 million then.
• Consumer sentiment: returning to levels on par with the early 2000s, after rising under both Trump and Mr. Obama.
• Wage growth: edging up in both periods, accounting for inflation.
Bureau of Economic Analysis; Bureau of Labor Statistics
Q: Does the growth look sustainable?
Although Trump’s economic advisers argue “yes,” many forecasters question whether White House policies will fundamentally speed up growth beyond this year.
The fiscal stimulus of tax cuts will fade, they predict. Trade policies, meanwhile, are a wild card. Trump argues that his threat of tariffs will result in deals in which trade partners buy more US goods, while scaling back on tactics that push their exports into US markets. However, if confrontations over trade persist, they could dent economic growth.
Also, the tax cuts are adding to the national debt, which many economists see as a drag on the economy over time. Annual federal deficits are forecast to exceed $1 trillion by 2020.
Still, some good news on the “sustainability” front is that one of the longest economic expansions on record is continuing.
Q: How broad-based is the prosperity?
As is often the case when the job market is tight, gains are spreading through all portions of the labor force. Unemployment rates for black and Hispanic workers are at historic lows. The jobless rate for women older than age 20 is near a five-decade low.
Still, millions of Americans live paycheck to paycheck. And as Brookings Institution economist Alice Rivlin told a recent conference, “You would expect in a labor market as tight as this that wages would be rising faster than they are.”
Boosting prosperity and security remains a voter demand. Many Republicans in Congress hope to make the Trump tax cuts on individuals permanent, while health care is a top issue for Democrats, who say GOP attacks on “Obamacare” are hurting average Americans.
Q: Where next for the economy?
If a trade war sets in, 2018 could prove to be the peak year for GDP under Trump, as rising trade barriers put a damper on growth after that, some economists say.
Tighter monetary policy from the Federal Reserve could also exert a braking effect on growth, and Trump has voiced concerns about this risk – comments that controversially departed from the tradition of presidents keeping quiet on that issue out of respect for the central bank’s independence.
But for now, although forecasters see the danger of recession starting to rise, they anticipate more growth next year. “We view the popular thesis that a US recession is coming in 2020 as a bit hasty,” economists at Goldman Sachs wrote in a recent analysis.
