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« How We Respond Tuesday Will Tell Others Who We Are | Main | Hospitality Tax a Vote for Economic Development »
Sunday
Nov042018

Trump Says Election Vote on His Economy, But Is It?

On many measures, the US economy has boomed under Trump. Unemployment is at lows unseen since the first moon landing, stock markets remain close to record highs, business confidence is up, trade agreements Trump has slammed as “unfair” are being rewritten. On Friday the government’s latest jobs report showed wages were rising at their highest rate since 2009.

If the Republicans come through in Tuesday’s vote and outperform expectations – despite Trump’s unpopularity – then no doubt a lot of pundits will be using the campaign quote coined by James Carville, strategist to Bill Clinton, to explain the outcome: “It’s the economy, stupid.”

Trump is pushing his hard line on immigration harder than his economic record. Polling shows economic issues become less of a factor when the economy is on a sound footing.

Immigration may play well to his base but swing voters will decide this election, and the economy is still a big issue. According to Gallup, in September, 13% of US voters rated economic issues as their highest priority, equal to the number concerned about immigration.

Wavering voters may well be looking to the numbers while they decide who gets their vote. The top line for “Trumponomics” looks good. A deeper dive exposes some uncomfortable facts about the US economy, but the headlines could be enough to propel the Republicans back into office.

Unemployment rate

How US unemployment rose and fell under Obama and Trump

The US unemployment rate hit 3.7% in September, its lowest rate since 1969. The US has now added jobs for 96 consecutive months, the longest streak of jobs growth since records began. The majority of those jobs were added under Barack Obama’s presidency but, hey … he’s no longer president.

But what kind of jobs have been added? Wage growth has lagged behind jobs growth since the recession, suggesting that the kinds of jobs the US is adding are lower-waged and that, thanks in part of the decline of unions, employers still have the upper hand in pay negotiations despite the tight labor market.

Mining has added 53,000 jobs over the past year; Trump campaigned on ending “the war on coal”. But compare that with healthcare, where there are many low-paid jobs, which has added 302,000 jobs.

The proof is in workers’ pockets. October’s job report showed wages growing at an annual rate of 3.1%, the highest rate since 2009, but still well below the 4.2% average right before the 2001 recession.

Wages are recovering - but slowly

Stock markets

Trump has tweeted about stock markets 67 times – more than 10 times the number of tweets that mention his daughter Tiffany.

Under his presidency the Dow, S&P and Nasdaq have all hit record highs, growth fuelled by his $1.5tn tax breaks, aggressive deregulation and a buoyant global economy.

Now he is worried. As the Federal Reserve raises rates, stock markets are wobbling, and Trump has publicly attacked the Fed, an unprecedented move for a sitting president. China’s growth is stalling, Europe once more looks like it is heading for trouble, some economists are predicting a recession next year.

The Dow has hit record highs under Trump

And perhaps Trump should be worried about where those stock market gains have actually gone. The top 10% of American households owned 84% of all stocks in 2016, according to a paper by the NYU economist Edward Wolff. That includes all the equities the bottom 90% hold in 401k retirement savings, university funds and other investments.

So while stock markets have boomed, the benefit has gone disproportionately to the wealthy. This isn’t the housing boom, which boosted the wealth of many middle-income Americans, while it lasted. But if stock markets do fall, which they inevitably will, the bottom 90% are likely to feel it first as corporations cut staff to trim their costs to appease the shareholders who have already done so well.

Trade

Trade wars are “good and easy to win” Trump declared in March before taking on all of the US’s largest trading partners in the largest trade dispute in a generation.

To be fair to the president, the trade issue has not – yet – been as catastrophic as many predicted. And Canada and Mexico, the US’s largest trade partners behind China, are now at the negotiating table and working towards a new deal. But China is a different matter. Relations appear to be worsening. And the EU, having called a ceasefire in July, is still bristling and has taken its dispute to the World Trade Organization.

Talking to business leaders in the US, it is obvious that what they dislike the most about Trump’s trade policy is the uncertainty. Caterpillar, a bellwether of the manufacturing sector, warned earlier this month that Trump’s tariffs had raised its costs. Cheese makers in Wisconsin, the US’s dairy capital, are pleased that Canada is negotiating on imports but worried that the EU has taken advantage during the dispute and that talks could break down.

The trade disputes may be on pause now, as the midterms draw to a close, but they are far from over. And the US under Trump has emerged not only as a bastion of protectionism after decades of extolling free trade but also a place where policy can be rewritten by a tweet.

Taxes

Trump’s $1.5tn tax break is the single largest policy achievement of his presidency – and yet the Republicans are barely mentioning it in the run-up to the election. Most of the cuts went to business and the rich and polling shows voters now trust Trump less on tax reform than they did before the bill was passed.

Clearly aware that his initial tax package has bombed with hoi polloi Trump has now proposed “a 10% tax cut for middle-income families … no business”. The proposal doesn’t seem to have much substance. The last tax cut helped push the Federal deficit to $1tn and even Republicans who have decided that deficits don’t matter, after years of believing the opposite, may balk at increasing it more. But it does acknowledge that politically for the average American a tax plan that Trump called “a bill for the middle class” hasn’t worked.

It is time for undecided voters to come off the fence but it is too early to truly assess Trump’s record on the economy. Trade disputes are ongoing, the long-term impact of tax cuts is still being assessed. So this election cycle, whether voters feel sick of winning or sick of Trump, is likely to be decided by their political leanings rather than the economy. By 2020 we will have a clearer assessment of Trump’s legacy and we will know who is really winning.

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