Assessing the Trump-Era Economy
Go Figure: Imports, Trade Gap Rise, Yet Rest of U.S. Economy Doing Just Fine
As President Trump jets off to Asia today to talk trade and security with his counterparts, he can take with him some bragging rights about the performance of the U.S. economy so far under his watch. According to the employment and trade data released this morning, and the GDP numbers out last week, the economy is performing well, but not entirely how the president promised in his populist campaign.
In our latest regular assessment of the Trump-era economy, I’ve been looking at six economic indicators that President Trump repeatedly identified as measures of economic success during his campaign and well into his term as president. In a previous post, I laid out the purpose and methodology of this ongoing assessment. The six economic goals the president has highlighted are 1) eliminating the U.S. trade deficit, 2) increasing real GDP growth to 3% or more, 3) creating 25 million net new jobs in 10 years, 4) boosting U.S. manufacturing employment, 5) reducing the the number of non-employed adult Americans, and 6) raising average wages for U.S. workers.
The purpose of this assessment is to hold the president accountable for the bold and, I will argue in some areas, ill-considered promises he’s made to the American people about what is wrong with the economy and what needs to be done to fix it. This also provides an opportunity to highlight why some of those promises are in tension with each other and will be difficult or impossible to deliver.
The Trump-Era Economy through October 2017
Based on the latest numbers released this morning, here is an assessment of the six metrics the president himself has identified as the measures of economic success:
The U.S. trade deficit in September was $43.5 billion, as reported today by the U.S. Commerce Department. The September deficit was smaller than the monthly deficits earlier in 2017, but still significantly larger than the deficits that President Trump inherited from his predecessor, as the nearby chart shows. Despite President Trump’s campaign pledge to reduce and eliminate the trade gap, so far in 2017 it has grown by 9.3 percent compared to the same period in 2016. While total exports have grown 5.6 percent, total imports have grown at an even faster clip of 6.4 percent. This is not a failure, as I’ll explain below, but it does highlight one of the contradictions at the core of the Trump economic agenda.
Broad economic growth, as measured by change in real gross domestic product, reached an annualized 3.0 percent in the third quarter of 2017, according to the U.S. Bureau of Economic Analysis report released last week. That follows 3.1 percent growth in the second quarter. This is good news for all Americans and symbolically important for an administration that has made 3 percent GDP growth a benchmark for its economic agenda. The latest GDP growth numbers are especially impressive when we consider the damage and disruption caused by the hurricanes that pounded the U.S. Gulf Coast this fall. The 3.0 growth mark is also the foundation for other goals of the administration, such as job creation, wage growth, and reduction of the federal budget deficit. One of the underlying reasons for the economic angst that helped to propel President Trump to the White House was the sluggish 2.1 percent annual GDP growth of the economy since the end of the Great Recession of 2008–09 (see the chart below). The test will be whether that growth can be sustained over multiple years.
Total non-farm employment jumped by a robust 261,000 net jobs in October, according to the Establishment Survey numbers released this morning by the Bureau of Labor Statistics, reflecting a bounce back from the weather-repressed job growth in September. So far under President Trump, net monthly job growth has averaged 168,500. That’s enough to keep the unemployment rate down, but it falls well short of the average monthly gain in jobs during Obama’s second term of 213,600. It also falls short of the 208,333 net new jobs per month that will need to be created to meet the Trump administration’s stated goal of adding 25 million total jobs during the next decade.
Manufacturing employment grew by a net 24,000 in October, according to the same BLS employment survey released this morning. This is a key metric for an administration that has vowed to protect U.S. manufacturing jobs from imports and outsourcing. Through the first 10 months of the Trump administration, manufacturing employment has grown by 138,000, or an average of 13,800 per month. That compares favorably to the average monthly gain of 8,000 during Obama’s second term (see the chart below). At this rate, the U.S. economy would add 662,000 manufacturing jobs during Trump’s first four-year term in office. It is too early to credit the administration with any fundamental shift in the U.S. manufacturing sector. Manufacturing employment in October was 8.5 percent of total non-farm employment, virtually unchanged from the share in 2016.
The number of Americans officially classified as “unemployed” continued to fall in October, reducing the unemployment rate to 4.1 percent, but this is not the metric the president has pointed to in the past as the right measure for joblessness. In fact, President Trump has dismissed the standard, U3 unemployment rate as “complete fiction.” Instead, he has pointed to the 94 million adult Americans officially counted as “not in the labor force.” This number includes all non-institutionalized adults who are neither working nor actively seeking work, from full-time college students to retirees. Trump has cited the real unemployment rate as the share of all adults who are not working, the flip side of what the BLS calls the “employment-population ratio.” According to the BLS household survey, also released this morning, the number of Americans not in the labor force in October rose to 95.4 million. When combined with the number of officially unemployed (not working but seeking work), the total army of adult Americans who are not employed in October stood at 101.9 million. That is virtually unchanged from the comparable number of 102.0 million in January 2017 when President Trump took office. The share of Americans who are not working compared to the total adult population in October stood at 39.8 percent, down 0.3 percentage points from the 40.1 rate in January.
Finally, the seasonally adjusted average hourly earnings of all private U.S. employees in October was $26.53, according to this morning’s BLS Establishment Survey. That is down a penny from September and up 2.4 percent from one year ago. Annual nominal wage growth so far under President Trump is running ahead of consumer inflation and also ahead of the annual average wage growth in Obama’s second term of 2.3 percent. This is a neutral story for a president who complained before he took office that U.S. wages were “too low.”
Concluding Comments
With all the challenges facing the Trump administration, the general health of the U.S. economy is not among them. Of the six metrics the president has highlighted, the economy is performing the best on GDP growth and manufacturing employment. A real GDP growth rate of 3 percent, if it can be maintained, would go a long way to achieving a number of the president’s goals, from more robust job creation to more tax revenue for deficit reduction. It would also lift real incomes for millions of American households, helping to relieve some of the popular angst that the president tapped with his populist message during the campaign.
Manufacturing employment is also a political plus for President Trump, even though it’s not a very important metric for the health of a modern, 21st century economy. Manufacturing jobs as a share of overall employment has been dropping for decades, not because of “unfair trade” or outsourcing, but because of rising productivity in the manufacturing sector. As I’ve noted elsewhere, U.S. manufacturing output has continued to climb, decade after decade, even though American factories are turning out those higher valued goods with fewer workers. The growth in manufacturing employment in recent years is not because of any policies aimed at trade or outsourcing, but because of robust demand for American manufactured goods, at home and abroad, and the ongoing expansion of output after the steep decline during the Great Recession.
Where the administration has failed most strikingly in achieving its stated goals is in reducing the trade deficit, but this is really no failure at all. In fact, the robust growth of both exports and imports so far in 2017 is a sign of accelerating growth in our domestic market as well as among our major trading partners abroad. Rising imports are not a drag on growth. They are a sign of healthy demand by household consumers as well as producers, who are able to employ more Americans and produce more final goods because they can source raw materials, components, and machinery through competitive global supply chains.
Let’s hope the president’s more sensible economic advisors take note that all of the good news so far in his first year — including 3.0 percent GDP growth and rising manufacturing and total employment — have been achieved with a backdrop of rising imports and persistently high monthly trade deficits. Instead of pursing a misguided agenda of threatening to withdraw from free-trade agreements and imposing tariffs on key imports such as lumber and steel, the administration should focus on reducing damaging and unnecessary regulations and reforming the corporate and personal tax code to encourage investment and growth.
Note to readers: After today, these regular assessments of the Trump-era economy will be offered quarterly instead of monthly. My plan is to post a fresh assessment soon after the first “advanced” estimate of quarterly GDP is released as well as the most recent trade and employment numbers. That means our next assessment will be on or around Friday, February 2, 2018. (We’ll see if the assessment has the feel of Groundhog Day.)
