It's year 1.5 of the Donald Trump presidency; by most measures about six months since he took real ownership of the economy. By now it's fair to ask, how's he doing?
The answer is ... fine. For now.
Contrary to Trump's numerous public statements, the economy is not "better than it has been in many decades." Businesses are not coming back like never before, nor are American finances "at an all-time high." Yet, contrary to the predictions of many of Trump's critics, neither has he yet driven the economy into a ditch. The economy and labor market are doing OK, with some concerning trend lines for the future.
As a report from the Brookings Institute puts it, "compared to his predecessors, Trump's record so far falls somewhere between unremarkable and substandard." Yet, author Robert Shapiro points out, "other economic data suggest that the current expansion will likely wind down before his term ends, and his boasting will ring hollow once the economy slips into recession."
To check that, consider the performance under Trump of four of the biggest economic indicators: GDP, unemployment, wage growth and the stock market.
So far, during 2018, Trump has averaged a 2.6%percent GDP growth rate. In 2010, at the comparable point in his presidency, Barack Obama averaged 2.5%. An historically respectable performance, although as Shapiro points out, somewhat weaker than it appears given that Obama took office during a major recession and Trump inherited a long running expansion. Among modern presidents who took office during widespread growth, Trump has presided over slower GDP growth than any except George H.W. Bush.
The stock market continues to grow. At time of writing, the Dow Jones Average was 25,013.29, a slight dip from January but nevertheless part of an ongoing trend upward. This, too, meets the expectations for a modern presidency. The market has climbed steadily since its nadir during the Great Recession, just as it did for most of the terms of Ronald Reagan, George H.W. Bush and Bill Clinton.
Unemployment continues to fall, hitting a new low of 3.9% in April. Good news for the Trump administration, it is also part of a steady trend that began in late 2009. Meanwhile, wage growth is spotty. It has climbed in fits and starts since 2010, but since mid-2014 the Federal Reserve's weighted wage-growth tracker has measured it ranging from 3% to 4%.
Which is right where wage growth has stayed in 2018.
The problem with the Trump economy is not its overall performance. Although many presidents who inherited growth have done better than Trump's team, the economy continues to perform adequately, and Obama left behind many structural weaknesses masked by unemployment and stock market numbers. Trump is not to blame for soaring inequality, soft wages, and a troublesome labor force participation rate, even if he has done nothing to fix those problems either.
No, the problem is just how much Trump has spent in terms of fiscal and political capital to achieve these unremarkable results. As Chris Macke wrote in The Hill of the multi-trillion dollar tax cuts passed in 2017:
During the three months following passage of the tax bill, the average American saw a $6.21 increase in average weekly earnings. Assuming 12 weeks of work during the three months following passage of the corporate tax cuts, this equates to a $75 increase… Yet, a key part of the argument for the recently passed corporate tax cuts and more than a trillion dollars in debt was the substantial wage hike promised by the president's Council of Economic Advisers (CEA).
Specifically, in campaigning for their $2.3 trillion tax cut, Republican leaders promised that it would "increase average household income in the United States by, very conservatively, $4,000 annually. Moreover, the broad range of results in the literature suggests that over a decade, this effect could be much larger."
This was ridiculous. Every Republican who made this promise knew it was ridiculous, and every credible economist who put his hands on this White House document knew it was ridiculous. Yet this was the basis on which the current government passed its deficit financed tax cut, burning through credit to ensure a predictable and predicted result: a few dollars spent on wage gains and billions spent on stock buybacks.
For this, America borrowed the money it would need to combat another recession.
After incurring a multi-trillion bill for corporate-focused tax cuts, the Trump White House and Republican leadership in Congress has already begun talking about cutting the social safety net due to debt-related concerns. Yet the current costs of social welfare programs pale in comparison with what America will have to spend when the downturn hits. Obama's government spent more than $2.8 trillion responding to the Great Recession, while Bush spent hundreds of billions of dollars keeping the auto industry afloat. The government spent billions more on additional claims for programs like unemployment insurance, food stamps and TANF when workers lost their jobs across the country.
As Jonathan Chait argues over at New York Magazine, this federal spending played a vital role in keeping the Great Recession from becoming a second Depression.
The Trump administration has engaged in sweeping deregulation, eliminating protections for workers, national parks, borrowers, the environment and more. It has begun the rumblings of a trade war with most of America's largest trading partners, making feints at the Chinese and European markets that lack any readily apparent organizing theme. It argues that all this will spur investment and purchases by private companies, who will feel more confident about the U.S. business environment, but this business boom simply hasn't materialized. Even the Durable Goods Index, often touted as proof of Trump's success, has in reality fluctuated far more widely than administration proponents claim. As with most other facets of the economy, business investment isn't weak, but neither is it doing historically well either.
The Trump economy isn't a bad place to be at the moment. Jobs have continued to grow and wages, while still somewhat soft, steadily tick up. The current economy is, more or less, a continuation of the last several years of the Obama administration.
Yet to achieve this status-quo result the administration has voraciously devoured America's economic seed corn. It has spent trillions of dollars that the government may someday need to counteract an economic downturn, and has begun steadily gutting the protections designed to prevent another 2008. It has antagonized trading partners and created a well-documented culture of courtier economics with business and foreign leaders alike.
All of this means that when, not if, a downturn begins, this administration will have few tools left at its disposal. Vast deficits will loom over any emergency spending packages, social safety nets will come under more strain, and all of those companies that lined up to shower Trump with meaningless PR wins… Well, pretty much anyone who has attended high school can attest to how reliable flatterers and fair weather friends tend to be.
The Trump economy is fine. Whether it can stay that way is another question.