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A third of the way through Donald Trump’s first term and the USA is still in one piece. Not only that, but by almost any measure the US economy is in a boom. If you had predicted this on that fateful day in November your optimism would have been met by scoffs from the very same people who saw Trump’s victory as an impossibility in the first place. Expectations at the time of the election were only slightly short of fire and brimstone, with experts such as Nobel Prize winning economist Paul Krugman predicting a ‘global recession’, adding that markets would ‘never’ recover from Trump’s victory. Yet in characteristic fashion Trump defied the odds. The stock markets are up, business optimism is up, and unemployment is down. In short: things are going well. But how well? And what’s the bad news?
The most obvious measure of economic success under Trump is the growth in markets. The Dow Jones Industrial Average has grown to record highs, smashing through the milestone of 20,000, and then through 25,000 where it currently sits. Though the correction last month cannot be ignored, as it tumbled over 2000 points in a number of days, it has since recovered, and its rate of growth during Trump’s first year in office was bested by only three presidents before him, one of which being Barack Obama. The surge in the stock market is in part due to external factors; sustained growth and stability in developing economies such as China and India has enabled the US’s largest businesses to expand their profits, while a recent fall in the dollar price has made US exports more attractive on global markets. However the Trump effect is not negligible; his Twitter account alone commands the power to shave billions of dollars of value off of companies that fall out of the commander in chief’s favour, and Wall Street remains optimistic about the Trump Administration’s policies of tax reform and deregulation.
Growth is not limited to large companies either, as the Small Business Optimism Index saw record numbers of businesses saying Now Is a Good Time to Expand in January. “The historically high index readings over the last year tell us small business owners have never been more positive about the economy,” commented National Federation of Independent Businesses (NFIB) Chief Economist Bill Dunkelberg. The growth is in large part thanks to many concerns of small businesses being addressed by Washington, namely high taxes and regulations. This should convert into more jobs and higher income for Americans in the future, though there are no certainties.
Finally, general indicators of US economic performance are doing well. GDP growth is up year-on-year, even if it failed to match Trump’s signature grandiose rhetoric predicting growth as high as 6%. Unemployment is continuing to trend down, sitting at 4.1%, supporting Trump’s claims of being a ‘jobs president’, and The Conference Board Leading Economic Index (LEI) continues to accelerate, pointing to higher growth in 2018. In light of this, the Federal Reserve looks on track to raise interest rates between 2 and 4 times in 2018, which will keep a lid on inflation and keep growth at a sustainable rate.
However, contrary to The Donald’s Twitter-feed, it can’t all be good news. Market growth doesn’t necessarily translate to wealth growth for Americans, especially since half of the country has no money in stock markets, and the rich are much more likely to have invested in stocks than the middle or working classes. This threatens a widening of wealth inequality if the US economy fails to see growth in other areas.
Furthermore, productivity growth has been more or less stagnant since the financial crisis, and remains a puzzle to be solved by US policymakers if they wish to see long term growth rates increase. In addition almost all wage growth in the US was offset by inflation in 2017, contrary to economic intuition. Relatively low unemployment combined with business optimism and strong market performance should translate into rising wages, but in the US it simply isn’t. Some theories claim that the US labour market is not competitive enough, and employers are not forced to increase wages despite low labour supply. Other theories point to an impending increase in wage rates driven by small businesses, as the supply of skilled labour is drying up and small businesses do not have the market power to avoid wage increases. This is perhaps one of the most important issues for the Trump administration to solve, as if business growth fails to translate into income growth for the average Joe, Trump’s rhetoric about the strength of the US economy will be seen as hollow. If the man who ran a campaign for American workers as opposed to ‘special interests’ can only deliver wealth to big business and not the middle and working classes, his 2020 platform may fall out from under him.
This boom is not one that was manufactured by Trump, but it is one being spurred on by him.
While the significance of the impact a president can have on economic performance is up for debate, there’s no denying Trump at least partial credit for his role at the helm of the world’s economic powerhouse. Despite this there are still hurdles for the president to surmount if he wishes to achieve his ambitious goals for the US economy, the most pertinent of which being generating more income and wealth for middle and working class Americans. Though if one thing has become a characteristic of Donald Trump since his announcement to run for president in 2015, it’s his ability to defy expectations. In the face of so many of Trump’s detractors being proven wrong time and time again, one can’t help but wonder if Trump himself is getting tired of winning yet.