With Republican control of Congress on the line in Tuesday’s midterm elections, President Donald Trump has repeatedly claimed that his policies have made the U.S. economy greater than ever. But is that true?
Before Trump’s inauguration, we picked the best indicators to judge the impact of his policies and determine whether the economy is living up to Trump’s pre-election promises. Since then, we’ve been tracking those indicators to see if they’re doing great, just all right or worse.
Beyond gross domestic product growth and better-known figures such as wages and the trade deficit, other metrics worth watching include the percentage of the population on food stamps and the share of prime-age workers in the labor force. With the help of Carl Riccadonna and Yelena Shulyatyeva, U.S. economists for Bloomberg Economics, we’ve divided the indicators into three groups: improving, staying about the same and going in the wrong direction. We’ll also tell you how they expect the numbers to perform in the years ahead.
So, has Trump made the economy great again? Riccadonna says the president has merely “extended the improvement of the economy” that began under predecessor Barack Obama and former Federal Reserve Chair Janet Yellen. Her successor, Jerome Powell, has also done an “excellent job.” And Democratic election gains that result in gridlock in Washington would probably preclude major changes in fiscal policy—something that’s not necessarily negative for markets, Riccadonna said.
Economic growth has picked up, but will it last? The latest numbers showed GDP grew at a 3.5 percent pace in the third quarter, bringing the four-quarter average to just over 3 percent—matching the Trump administration’s goal. Many aren’t convinced the pace will be sustained. The acceleration has been fueled by tax cuts, whose effect is likely to fade in 2019, while rising interest rates and Trump’s trade war will also take a bite out of growth. Some analysts say the headwinds could be strong enough to drag the economy into recession in 2020, just as Trump stands for re-election. Riccadonna says it's more likely that growth will return to about 2 percent, which would still be above the Fed's long-run estimate of 1.8 percent.
Wages are slowly but surely creeping up: October’s jobs report showed that the rise in annual average hourly earnings finally crossed 3 percent for the first time since 2009. What’s puzzling is that it took so long to do so, even with an unemployment rate that Fed officials say should theoretically boost inflation. Pay is likely to keep going in the right direction, but Riccadonna says progress will remain slow, hitting about 3.25 percent by the end of 2019.
Factory hiring comes back, but boom may be fading: Trump campaigned on a pledge to restore American manufacturing. While the industry remains a far cry from where it was in the 1970s, factory employment has performed nicely, with payrolls rising 3.4 percent since early 2017, outpacing a 2.8 percent increase in total nonfarm jobs. The gains have cooled slightly in recent months, however, and further increases will likely be on a smaller scale than the last two years, amid the trade war and a strong dollar.
Better economy means more full-time workers: Not only has the unemployment rate dipped to the lowest level since 1969, but the share of workers with full-time jobs is closing in at the highest since the early 1980s. The number of Americans with part-time jobs who’d prefer full-time work has been steadily declining for most of the current expansion. The prevalence of full-time hours should keep advancing as the job market tightens.
Share of population on food stamps keeps falling: The proportion of Americans receiving food stamps—a proxy for poverty—resumed its decline following a spike in late 2017 related to hurricanes Harvey and Irma. It will probably stay on a downward trend as the unemployment rate declines, Bloomberg Economics says. Yet the July level of 11.9 percent remains well above the 8-percent range where it stood before the last recession began in 2007. The 39 million benefit recipients serve as a reminder that not everyone is sharing in economic good times.
Women are getting more of a jobs boost than men: The prime-age labor-force participation rate—measuring the share of Americans age 25 to 54 with jobs or actively seeking one—has stuck out for much of the expansion as a sign of how the job market had more slack than the level of unemployment indicated. It’s making gains, though it remains well below where it was 20 years ago. What’s more, participation has risen much more for women than for men. What gives? Some sluggishness in the construction industry could be to blame, according to Riccadonna and Shulyatyeva. Other possible culprits include the long-term decline in factory jobs and the opioid epidemic.
Tax cuts’ boost to investment is unclear: Almost all signs were that capital spending was moving in the right direction and getting a lift from tax cuts—until the third-quarter GDP report showed business investment rising at the weakest pace in almost two years. Now analysts are watching to see whether the latest number was a hiccup, or whether the stimulus effects have already worn off. There’s a “big question mark” over that now, and part of the slowdown might be related to Trump’s trade war, Riccadonna says.
Budget deficit balloons because of Trump's tax cuts: The tax cuts may be giving a boost to GDP growth, but at the cost of an exploding federal budget gap. For Trump’s first full fiscal year as president, the deficit grew to $779 billion, the highest since 2012, and the Congressional Budget Office expects the figure to exceed $1 trillion in two years. Riccadonna says the tax cuts aren’t paying for themselves as Republican backers promised, and rising yields on Treasuries reflect the increasing debt load.
Trade gap widens as tariff war escalates: : Trump’s repeated pledges to reduce the trade deficit—which he says shows other countries are taking advantage of the U.S.—have proven empty. The gap in merchandise trade hit a record in September, and Bloomberg Economics expects further widening as domestic demand fuels imports. Meanwhile, a strong dollar and retaliatory tariffs from abroad are making life more difficult for U.S. exporters.
So, that makes six significant indicators that have improved under Trump, one moving sideways and two that aren’t so great. And even with overall improvement in the economy, voters appear more inclined to reward Democrats with gains in Tuesday’s polls. Meanwhile, October’s stock-market rout suggests investors are adjusting their expectations for growth. We’ll continue to track these metrics and report back on whether Trump is making the economy great again.