Washington, DC — President Donald Trump relentlessly congratulates himself for the healthy state of the U.S. economy, with its steady growth, low unemployment, busier factories and confident consumers.
But in the year since Trump’s inauguration, most analysts tend to agree on this: The economy remains essentially the same sturdy one he inherited from Barack Obama.
Growth has picked up, but it’s not yet clear if it can sustain a faster expansion. Hiring and wage growth actually slowed slightly from Obama’s last year in office. Consumers and businesses are much more optimistic, but their spending has yet to move meaningfully higher.
“I don’t see any noticeable break over the past year,” said Michael Strain, an economist at the conservative American Enterprise Institute. “We tend to overstate the degree to which the president has the ability to control the economy.”
The U.S. public appears to have a similar view, according to a Quinnipiac University poll last week. It found that two-thirds of American voters say the economy is “excellent” or “good,” the highest since the poll started asking about the economy in 2001.
Yet 49 per cent of respondents credited Obama for the economy’s health, compared with 40 per cent who credited Trump.
Trump’s successful push for income and corporate tax cuts and his steps to loosen regulations have helped drive a surging stock market rally fueled by the prospect of higher corporate profits. And most economists are optimistic that growth will continue at a solid pace this year.
“We have created more than 2 million new jobs since the election,” Trump said last week in Nashville, Tennessee. “Economic growth has surged past 3 per cent, something that wasn’t supposed to happen for a long time. We’re way ahead of schedule. Unemployment is at a 17-year low.”
Those trends aren’t very different from what came before. Employers added more jobs in Obama’s last year in office —2.2 million in 2016 —and nearly 3 million in 2014. Economic growth did top 3 per cent at an annual rate during the second and third quarters of 2017. But it had surged above 4 per cent in the second and third quarters of 2014.
The unemployment rate fell from 4.8 per cent when Trump took office to 4.1 per cent now. It fell by the same amount or more in 2013, 2014 and 2015.
During the presidential campaign, Trump portrayed the economy as floundering and called the unemployment rate “one of the biggest hoaxes in modern politics.” Now he accepts the government’s data at face value.
When the government reports growth for the October-December quarter next week, it may show the economy expanded at a 3 per cent or higher annual rate for the third straight quarter. That could lift growth in 2017 to the fastest pace since it reached 2.9 per cent in 2015.
Some of that growth may reflect greater spending by consumers or businesses in anticipation of tax cuts. But most economists expect it will take time for Trump’s deregulatory and tax policies to have their full effect.
There’s no question that businesses and consumers are more optimistic. The Conference Board’s consumer confidence index jumped to a 17-year high in November before slipping a bit last month.
That hasn’t yet resulted in more Americans opening their wallets, though. Spending growth in the first nine months of 2017 was slightly slower than in the previous year.
Some economists are growing skeptical of consumer sentiment surveys because the responses seem increasingly skewed by political leanings. People in counties that voted for Trump reported a much brighter outlook on the economy after the election than did people in Clinton counties, according to a report by the Federal Reserve Bank of New York.
People in Trump-voting counties were much more likely just after the election to say their financial situation had improved in the past year, the New York Fed said, long before any of Trump’s policies were in place. But the change in sentiment didn’t produce changes in consumer spending, the report said.
“It does somewhat undermine the message from the confidence surveys,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics.
American companies have stepped up their investments in machinery, software, and office towers this year after sluggish spending in 2015 and 2016. Such spending increased about 6.2 per cent at an annual rate in the first nine months of the year.
Still, business investment topped 9 per cent in the first three quarters of 2014.
In both cases, rising oil prices played an outsized role in spurring more corporate spending. When oil prices increase, drilling firms tend to buy more steel pipe and other goods that are used in drilling rigs.
Dean Baker, an economist at the Center for Economic and Policy Research, points out that when mining and oil and gas are excluded, investment spending has increased an anemic 3.3 per cent this year.
Many economists expect growth to perk up in 2018, with the impact of tax cuts and the Trump administration’s deregulatory efforts spurring corporate investment and consumer spending. So far, 15 regulations that were put in place by the Obama administration have been overturned by Congress. The administration has put dozens of others on hold.
“There’s just generally the feeling that there’s more pro-growth policy coming from Washington,” O’Sullivan said.
O’Sullivan forecasts that growth will reach 2.8 per cent for all of this year, roughly in line with other projections.
“2017 was largely an Obama economy,” Mark Zandi, chief economist at Moody’s Analytics, said. “But going forward it will definitely be a Trump economy.”
Other factors besides tax cuts and deregulation are playing a role. For the first time since the most recent major recession ended in 2009, the global economy is enjoying widespread growth. That kind of broad expansion helps boost spending on U.S. exports of factory goods, a boon to manufacturers, and also lifts the stock market because it increases profits for U.S. multinational corporations.
Germany’s economy expanded 2.2 per cent in 2017, the fastest in six years. Business sentiment in Japan is at the highest level in 11 years. China is still growing at nearly a 7 per cent annual rate.
Manufacturing executives appear highly optimistic and welcome the attention Trump has lavished on their industry. Factories added 196,000 jobs last year after shedding workers in 2016. Still, manufacturing added 208,000 in 2014 and 207,000 in 2011.
And most of the jobs that have been added this year were outside the Midwestern “Rust Belt” states that swung for Trump in the election. Instead, some of the states with the biggest gains are in the South, Southwest and Northwest.
Factory jobs grew 4 per cent in South Carolina from January through November, the largest gain nationwide, followed by South Dakota with 3.9 per cent. Iowa, Rhode Island and Texas were next, followed by Wisconsin, which enjoyed a 3.2 per cent gain. Florida, Oregon, Oklahoma, and Arkansas closed out the top 10.
Meanwhile, Michigan’s manufacturing employment was flat last year, while factory jobs rose just 0.5 per cent in Ohio. Pennsylvania lost manufacturing jobs.
Fiat Chrysler said last week that it is moving production of some pickup trucks from Mexico to a factory in Warren, Michigan, near Detroit, which will be expanded. The move will employ 2,500 people. And Toyota and Mazda said they will build a factory in Huntsville, Alabama, that will add 4,000 jobs.
At the same time, 215 more workers were laid off last week at the Carrier Corp. factory in Indianapolis where Trump touted a deal early in his presidency that prevented the plant’s closure.
“There are still jobs headed overseas, no question about it,” Scott Paul, president of the Alliance for American Manufacturing, said. “You can’t tweet jobs back into existence.”