ME has spent most of his retirement from service to the United States studying, thinking, and writing about the country he served.
When Barack Obama was sworn into office on January 20, 2009, his predecessor, President George Bush, left him an economy that was quickly falling into a worldwide depression.1 Jobs started being shed at a clip of 800,000 a month! Bush's TARP program was just being implemented, and Obama's stimulus program had yet to be passed. Without either, most economists think a depression was certain. But the measures did work, and the world only fell into the worst recession since 1937. Through Obama's efforts and with a Democratic Congress behind him, things began to turn around relatively quickly.
Flash forward to 2017, and Donald Trump is sworn into office. President Obama turned over to him not a depression in the making but a strong economy that was approaching records in the longest period of uninterrupted growth and the longest record in job growth. Few presidents in history were given such a wonderful running start to take America to even greater heights. So what has Trump done with such a gift in his first 29 months in office?
1 Actually, the recession had started in Dec. 2007, but no one but the economists noticed. Bush and the Republicans kept minimizing what was happening.
Where Did We Begin and Where Are We Now?
I began tracking Trump by the Numbers with something called a stoplight chart. It is often used in business to show how a program or business is doing. A stoplight chart assigns colors to depict how various parts of the business are doing. We do the same here by focusing on a series of metrics which show how well the American economy is doing. This is what Chart 1 below gives you.
As you can see, there are two columns of stoplights. The left-most column is the ways things stood, in my opinion, when Donald Trump assumed office. For example, in January 2017, GDP was perking along just fine. Not so weak as too fall back into a recession and not too strong as to cause a boom, followed by a bust (larger recession). That is why I rated it Green for OK.
On the other hand, I rated Median Income as Yellow, or "in trouble". It was in trouble because even though income recovered nicely, the increase stopped in 2015. Since it stopped growing, I rated it Yellow.
When I created the stoplight chart for President Obama, I rated the Uninsured Rate Blue (Above Average) because he was responsible for the largest decrease in uninsured Americans in history. On the other hand, I rated the Uninsured Rate Red at the beginning of Trump's time in office because of all of the turmoil his candidacy caused that actually resulted in fewer insured Americans.
The bottom set of stoplights reflect Trump's popularity relative to various issues. So let's take a closer look at how Trump did.
Trump's Stoplight Chart
The first set of metrics has to do with economic growth overall and the next level down. Except for Export-Import, GDP, despite Trump's rhetoric, is only marginally better than what Obama left him. Overall, Obama's GDP record is around 2.2 - 2.5% and Trump's record through the 1st Quarter of 2019 is 2.9%. Consequently, I left it at Green for all but Export-Import. In fact, probably because of Trump's trade war, this metric has gotten worse; I'll get into more detail as to why, later.
The Debt and Deficit category is not one of Trump's strong points; primarily because of the GOP tax cut. Both started out Green because the deficit was more or less under control once the effects of the Great Recession wore off, although it was growing again. The Debt was also not causing problems (so long as interest rates stayed low). But then the GOP tax cut happened and ruined it all.
Employment metrics have remained relatively constant for the last 29 months, with two possible exceptions. The Participation Rate while improving under Obama, it was not great - and it hasn't gotten any better with Trump. Both Average and Median Weeks Out of Work is getting worse, which is why the change to Yellow.
Miscellaneous metrics are interesting, even though they seem fairly static. It is that lack of color change that is the story, given what Trump says is reality, they are very out of sync. Trump's worse showing, however, is America's Carbon Footprint; it has gotten much worse starting after his 12-month point.
We start our analysis by looking at what is going national debt. If you look at Chart 2, you might be tempted to say Trump is doing pretty good—if you make a comparison with Obama. But appearances can be deceiving.
On the face of it, with a 2.1% growth in the national debt compared to Obama's 4.1% over 7 years (I left out the 1st year of the recession). Expand your view a bit, however, and you will see Obama did much better than Reagan-Bush or Bush 43; only Clinton did better.
But what isn't shown here—yet—is that the impact of the GOP Tax Cut for corporations and the rich having a serious impact on revenues. Treasury Secretary Steve Mnuchin sent a letter to Congress in mid-July telling them that because of lower than forecast revenues (remember GDP is growing right now), he has revised when the government will run out of money to pay our bills from early October to mid-September. The reason is the promised GDP growth didn't happen to the degree the GOP said it would.1 When they passed the tax law, they knew that with everything else being equal, tax revenue must fall. Their stated plan was the tax cut would spur economic growth to such an extent, the net effect on tax revenue would be positive. That didn't happen.
The result is forecast by the Congressional Budget Office is a ballooning of the federal debt. Since the law was passed in 2017 for the 2018 tax season, its impact is just beginning to be felt. As each month goes by now, Trump's 2.1% growth in debt will begin to increase rather rapidly.
So, while I have this metric rated Green for now, I fully expect it to go Yellow or Red before Trump's term is over.
1 Only once (1964) in tax-cutting history have revenues actually increased as predicted. In 1987 tax revenues also increased but that tax change resulted in a tax increase for lower and middle income people and a tax cut for higher income taxpayers.
The Debt and Deficit are tied at the hip. So long as the deficit stays negative, which it has throughout almost all of American history1, the national debt will increase. Even it runs a surplus for a short while, the debt will still probably increase for a bit.
After spending our way out of the Great Recession of 2008, President Obama seriously reduced the deficit. In fact, by 2015 the deficit as a percent of GDP fell below the historic average. Starting in 2016, entitlement programs and interest on the debt began to outstrip increases in revenue. By the time Trump's first term is over in 2021, the CBO projected, in 2016, that the deficit would reach $895 billion, all else being equal.
The current CBO projections, taking the GOP tax cut into account now projects the deficit to reach $1.162 trillion by the end of 2021. If revenues keep under-performing, then that deficit will increase even further.
This is why this metric is rated Red.
1 The last time the federal government ran a surplus was under President Clinton in 1999 and 2000.
Donald Trump has tried to make a very big deal about how his economy is doing better than it ever has in our history. By looking at Charts 4 - 6, you can easily see that is simply not true. The truth is he is just continuing the recovery President Obama started. Granted, the rate of growth is slightly higher, but not by much. That is why I rated him Green in this aspect.
In Chart 4, you can see that growth has been constant once we recovered from the Great Recession of 2008. If Trump had done a much better job, you would be seeing an increase in slope during his tenure. There is not - even if you reduce the scale a lot.
In Chart 5, it would appear Trump is doing much better than Obama. But again, looks can be deceiving. If you take out the effect of the recession, Obama's number increases to something like 2.5%. Note also, Trump is only doing better than Bush 43; but there again, Bush's numbers are reduced by the recession. By this measure, Trump is doing just a mediocre job.
Finally, with Chart 6, quarterly GDP growth, we again see that Trump's results are not any better (or worse) that President Obama's. Where Trump is doing better is that he has not had any quarters of negative growth in his 2.25 years where Obama had two in his 8 years.
This is why my overall GDP score for Donald Trump's first 2 and 1/2 years is Green - he is staying the course.
GDP by Component
When you peel back the GDP numbers a little bit, an interesting story might be emerging. I say might because I need to wait until the end of July 2019 to see the new GDP numbers in order to determine if a trend is building.
Unlike previous quarters, the results of the 1st quarter, 2019 shows different parts of what makes up the GDP is driving the final result. From Chart 7, you can see the GDP is made of of four principal parts: Domestic Consumer Spending, Domestic Business Investment (includes foreign investment into America), Government Spending, and Net Trade.1
Important to this discussion is that each of these components has sub-parts as well.
- Consumption is made up of Goods and Services
- Business investment is comprised of Fixed Investments (98.5%) and Change in Business Inventories (1.5%)
- Government Spending is the sum of Federal (41%) and State/Local (59%) spending
- Net Trade is the difference between Exports and Imports.
Further, about 70% of GDP is "normally" from Consumption. Another 18% results from Business Investment and Government Spending. Historically, about a negative 5% results from Imports exceeding Exports (may not add due to rounding).
OK, now that you know everything you need to know about GDP, let's see what happened and why this quarter was different from the preceding ones.
First, over all GDP increased 3.1% from the 4th quarter 2018 to 1st quarter 2019. That is normally a growth figure everybody would be happy about. But in this case, Trump was lucky because a couple of those esoteric sub-components of GDP over-performed, keeping GDP higher than it otherwise would have been.
- Normally, consumption drives GDP, but not this quarter. Goods actually declined in this quarter and Services stayed about constant. This resulted in a paltry 1.3 percent increase over the previous quarter.
- Normally, changes in business inventories is a fraction of the changes in Fixed Investments. But not in this quarter. Inventories rose substantially (which is in line with lower sales growth) and made up an abnormal share of overall GDP growth
- In January 2019, the federal government was shut down which greatly reduced federal spending. Normally, this would have had a serious negative impact on GDP, but not this quarter. It seems the states got tired of waiting for the feds to do something about our crumbling infrastructure and started going it alone. Consequently, state spending increased a lot, driving up GDP while the federal government drove it down. The state spending is not sustainable, by the way.
- Finally, as a consequence of Trump's trade war, imports declined significantly, which is not normally what happens. Both exports and imports generally grow over time resulting in little change in net trades contribution to overall GDP. This time imports decreased quite a bit, artificially driving up GDP
As a result, we ended up with what appears to be strong growth but in reality, it is based on a house of cards - at least for this quarter. At the end of July there will be a new set of numbers where we will see if this was just an anomaly or the beginning of a trend.
It is now a week later and the new numbers are in.
Experts predicted the economy would expand at just 1.8%; in fact, it expanded rate of 2.1%; down considerably from the previous quarter's 3.1%. Further, this report downgraded several previous estimates. For example, a previous estimate of 4.2% was changed to 3.5% are reviewing additional data.
So how has the second quarter changed from the 1st? First, consumer consumption had a rebound, growing at 4.3%, compared to the previous quarter's 1.1% growth. On the other hand, Business investment decreased 1%, the previous quarter's gain was 1.09%, primarily from businesses stocking up on inventory before prices increased due to new tariffs.
Moving on to Government Spending. Federal expenditures declined significantly because of Trump's government shutdown. But, state spending increased to more than make up for it- keeping GDP up. In the 2nd quarter, federal spending caught back up and state spending remained constant thereby increasing overall spending for the quarter.
Finally, we have Net Trade. Not good. Exports, which improve GDP, declined significantly. While last quarter, exports increased, pushing up GDP and imports decreased, pushing up GDP even further, having a lot to do with the 3.1% overall growth. This quarter, however, imports decreased (reducing GDP) from the trade war, and imports increased (reducing GDP).
Therefore the combination of decreased business investment and increased trade deficit almost equaled the increase in consumer and government spending leading to a small increase in GDP.
1 Note the downward slope of the Net Trade line. That means the trade deficit is getting worse. Trump started a world-wide trade war to reverse America's trade deficit. In reality, this war has predictably made things worse.
This is one of Donald Trump's go to metrics because it is actually doing quite well, I rate it Blue. The reasons for its above average run are varied.
First, note the parallel lines. They represent something called a "channel". A channel tracks the ceiling and floor of a series of stock prices. It should be clear that Obama's channel was solid and, until 2016. So, extend that out, you can see what stocks might have done if Obama had remained in office.
Clearly, beginning in 2016, the DOW started out performing the established trend and, for the most part, continued to do so. The initial reason is thought to be all of the hype surrounding the corporate tax cut if Trump wins. The next reason is all of the hype surrounding to the corporate tax cut after Trump won. Then, after the tax cut passed, the stock market reacted as one would expect when corporations receive a massive tax cut.
This was until Trump's tariff war caught up with him. In September 2018, the market nosedived on word of trouble with the Chinese during trade negotiations. As trade negotiations went up and down from there, so did the stock market. The current rise (July 2019) is due to optimism about an interest rate cut because the Fed is pessimistic about the economy - because of the tariffs.
One of the reasons the average person does not feel like they are participating in the steady growth of our economy is that wages, since 2003, have been stagnant. Only near the end of President Obama's administration did real wages begin to grow.
I say "real" wages because that is different from the wage growth that is reported monthly. "Real" wages is 'Nominal" wage growth less inflation. What is left from that calculation is the "purchasing power" of that growth - hence Real.
Chart 9 depicts real wage growth since 1989. Keep in mind that wages rarely go down. Even in the depths of the Great Recession of 2008, normal wages didn't decrease very much (income based on profits, capital gains, executive salaries did shrink considerably). So, in reading Chart 9, know that decreases in real wage growth reflects higher inflation for that period, e.g., 2000, 2011, 2018.
Further, when real wage growth trends down, such as between 2002 and 2006, that means inflation is outpacing any nominal wage growth (generally because wages are stagnant). When it is trending up, like between 2012 and 2016, wages are increasing faster than inflation - the preferred outcome.
What do we see for Trump's 2 1/2 years? We see that for the most part, inflation is eating up most of any wage increases people may be seeing. The end result is real wage growth under Trump is equivalent to the earlier years of Obama but lower than Obama's final years in office.
This is why I have rated Trump a Yellow for this metric.
The Participation Rate is a broad measure of employment in America. It basically means what percentage of people who could work, want to work. Prior to the mid-1970s, it remained below 60%, primarily because women stayed out of/weren't allowed in the workforce. When the economic and social conditions changed, the barriers to the working women collapsed and they joined the workforce in great numbers. By the end of President Clinton's administration, it a historic high of 67.1%. President George W. Bush issued in an era of declining rates with, in 2008, the bottom falling out because of the Great 2008 Recession. President Obama finally reversed this trend in 2015 when it bottomed out at 62.6%.
By the time Trump assumed office, it had risen to 62.7%. As of Jun 2019, it was 62.8% - there was no real growth, but then no decline either. I rate this a Yellow because it is stagnant rather than showing real growth.
These metrics look at various measures of unemployment. One, the UE rate is the standard, official unemployment rate, currently at 3.7%; up from a low of 3.5%. It is currently projected to rise to 4.4% by the time Trump's first term is over.
Another is the U-6 rate, a much broader measure that includes people willing to work but may have stopped looking for one reason or another. This rate is currently 7.2%, up from a low of 7.1%.
A third metric I recently included is "Multiple Job Holder Rate", or how many people are working more than one job to make ends meet. Right now, it is at 5.2%, up from a low of 4.9% in July 2017.
All three metrics are ticking up, and have been for the last few months. But, because the up-trend is not sharp, nor for very long, I still rate this a Green for Donald Trump. If they continue to climb of the next few months, I will lower my rating to Yellow.
This extremely busy chart doesn't have much of a story to tell yet. There is not much movement in any of the sub-elements of employment. But what movement there is, is in the correct direction - which is why it is rated Green.
The top two lines on the chart are the Non-Institutional (NI) Population and Labor Force, respectively. The percentages is the annual growth rate. The NI is basically the pool of people who are eligible to work and is closely tied with population growth and immigration (really a subset of population). The Labor Force is just that, how many people who are in the labor force available and willing to work.
In the long run, you would think these two rates would grow at roughly the same rates; but, notice they don't. During the Bush years, the amount of people available to work grew much faster than the labor force did. In fact, the labor force shrank because of the Great Recession of 2008 which explains such a disparity. The same is true during Obama's time. While NI grew at almost the same rate as previously, the labor force grew at a much slower rate due to the severity of the recession and slower recovery.
Things change with Trump. The growth in the number of people available to work has slowed way down, possibly tied to Trump's anti-immigration policies, while the growth in the number of people willing to work has returned to Bush levels. This goes a long way to explaining why the unemployment rate is so low.
The employment level (number of people employed) and Full-time employment are trending up while Part-time employment is trending down. All three are indicative of the full-employment which America is experiencing today. The same is true with Willing and Discouraged workers, their trend is down as well (although discouraged workers has about leveled out recently) - those are good signs as well. It is when those trends reverse will we sense trouble ahead.
One might ask that if unemployment is doing so well with 3.7% unemployment and all the other reasonably good looking metrics already presented, why is this one Yellow? It is because this chart, and the ones that follow are "leading" indicators. In other words, they portend what is potentially coming.
It is composed of three lines; 1) the average weeks out of work and 2) the median weeks out of work.The "average" is just that, an average of a series of figures without regard of how their distribution is shaped. The "median" is a central number where the number of data points above that figure is equal to the number of data points below that figure.
It would seem the relationship between those curves is important. Notice the green lines and the yellow triangles. The yellow triangles indicate when recessions occurred. The green lines are where the median weeks out of work began to increase.
What is important is that it seems that about the time of each recession, the median weeks out of work starts to increase just prior to or at the same time the average weeks out of work - but never after. Likewise, when recessions are over median weeks out of work declines well before average weeks do.
This is true in 1981-82, 1990, 2001, and 2007 (when the Great 2008 Recession actually began). So what is happening now? It would seem we may be at the beginning of an economic downturn if the upticks in both median and then average weeks out of work. Hence, the Yellow rating.
Lots of wiggly lines on this chart. Each line represents the number of people who have been out of work for the respective number of weeks. In a good economy, one would expect a declining number of people in each bracket, with the most in the "less than 5 weeks". We see this to some extent, with the exception being the longest buckets, 15 - 27 weeks and greater than 27 weeks - they appear to be equal. Given the last bracket has no end, then this might be so surprising.
I don't have the golden triangles depicting recessions on this chart like I did on the previous one. Nevertheless, it is easy to tell just be looking at the yellow line (>27 weeks). Each time this line begins to grow, we are in the midst of a recession. When it peaks, the recession has been over for a short while.
One thing we notice is that prior to all but the last recession, the <5 weeks and the 5 - 14 week buckets began to increase followed by the longer term buckets. But for some reason (not important at this point) prior to the Great Recession of 2008, the long-term buckets started increasing first.
Now turn your attention to the last few months on the chart, what do you see?
- The < 5 weeks out of work line is still decreasing - GOOD
- The 5 - 14 weeks out of work line has taken a marked upward move - NEUTRAL
- The 14 - 27 weeks out of work line is declining but flattening out - BAD
- The > 27 weeks out of work line is spiking upward - NEUTRAL
So, what does it mean? The fact that the long-term unemployment is increasing is worrisome; but not so much that I would rate this metric a Yellow. If the 14 - 27 weeks line begins to increase as well, then I will lower my rating because if both metrics are increasing, they may predict a recession is on the way.
Chart 15, Job Openings, Hires, and Fires is brand new to my list of metrics. It is also the last in the employment series.
What tells you is how many total non-farm job openings there are at that point in time. It also presents how many people were hired during that time frame as well as how many people were fired. Each individual metric is of interest on its own, but also in how they relate to each other.
The current chart depicts something that has happened only two or three other times in the history since when these metrics were started - Job Openings (the Blue line) exceed the number of people to fill them.1 In other words, there are more jobs available than there are people willing to fill them! This, of course, is the reason for the extraordinarily low unemployment rates we have today.
Here is what is interesting about this chart. Notice that job openings has been increasing since the bottom of the Great Recession of 2008; sometimes quickly and sometimes not so much. Surprisingly, throughout the first term of Obama's presidency, hires and fires (the Red and Green lines, respectively) remained relatively constant; not growing with the number of job openings. Only in 2014, did hiring start to increase noticeably; and has continued to do so since. Also, hires consistently outpace, even if by only a little bit, separations. This means the excess job openings are being filled.
What we are looking for are:
- A decline in job openings which would indicate business is slowing down
- A decline in hiring
- An increase in separations.
- The point where separations exceed hires - business is shedding workers
None of those things seem to be happening now, which is a good thing, although the last couple of hiring data points might portend a slow down in hiring; but then again maybe not, we will need a few more months to tell for sure. Nevertheless, I have rated this metric Green as well.
1 You will have to take my word for it because the hires and fires aren't related in terms of total available for work.
© 2019 Scott Belford