Assessing the Trump Era Economy
Measuring Its Performance by the President’s Own Criteria
As a candidate and as president, Donald Trump has made bold claims about how he will fix the U.S. economy. Much of his support in blue-collar America was energized by his promises to boost economic growth, raise wages, create millions of new jobs, especially in manufacturing, and shrink the trade deficit.
A bare five months into the Trump presidency may seem too early to assess how the economy is performing, but President Trump himself is already taking credit for the economic news. In his recent trip to the Middle East, he told the audience in Saudi Arabia, “A new spirit of optimism is sweeping our country: in just a few months, we have created almost a million new jobs …” In other speeches and interviews, he has claimed credit for announcements by U.S. manufacturers to expand employment at their facilities in the United States or to cancel plans to transfer production abroad, and for agreements with foreign countries to buy more U.S. exports. In a tweet on Sunday, the President Trump touted the “Great numbers on the economy,” the result of bills and executive orders “now kicking in!”
Tracking the Economy by President Trump’s Own Benchmarks
To track how the economy is performing as measured by President Trump’s own benchmarks, we need to examine how the economy has performed according to six indicators the president himself has identified as major goals of his administration. Those indicators are: 1) the balance of trade, 2) real GDP growth, 3) net job creation, 4) manufacturing employment, 5) the number of non-employed, and 6) average wages.
One purpose of this exercise will be to provide accountability to the public for specific promises President Trump has made about what he will accomplish as president. What the president says should be taken seriously. Another purpose will be to highlight what are certain tensions and even contradictions in those commitments, in particular reducing the trade deficit while boosting deficit spending and foreign investment. (More on this below.) As these tensions become more apparent in the months ahead, this regular assessment will provide an opportunity for deeper analysis.
Here are the categories and specific measures of economic performance that I will be assessing monthly:
Trade. A major goal of the Trump administration is the elimination of the U.S. trade deficit in goods and services. According to an economic plan released during the campaign, authored by two key Trump advisors, “Trump proposes eliminating America’s $500 billion trade deficit through a combination of increased exports and reduced imports” (p. 18). At the meeting this Monday of President Trump’s full cabinet, the U.S. Trade Representative Robert Lighthizer highlighted the president’s message “that [trade] deficits do matter and are coming down,” to which the president replied, “Thank you, I know they are.”
Economic growth. In President Obama second term, annual growth in real gross domestic product averaged 2.1 percent. President Trump has repeatedly vowed to increase America’s annual economic growth rate to 3 percent or more. His newly released budget for FY2018 assumes a 3 percent growth rate will be achieved by 2020 and continue indefinitely (p. 45). The official White House website says the president’s economic plan will restore the nation to “4 percent annual economic growth.”
Employment. President Trump has articulated three major goals for the American labor market:
1) The Trump campaign and White House has promised to create a net new 25 million jobs in the next decade, or an average of 208,333 net jobs per month.
2) President Trump has repeatedly stated the goal of restoring manufacturing jobs to the United States, promising the creation of “millions” of additional jobs in the sector.
3) As for unemployment, the president has dismissed the monthly headline unemployment rate (known as “U3”), currently at a 16-year-low of 4.3 percent, as “totally fiction.” Instead the president has repeatedly pointed to the much larger number of adult, civilian, non-institutionalized Americans who are not employed and not in the workforce, which was approximately 94 million in January when he assumed office. When combined with the 8 million unemployed who were seeking work, the total number of adult (16 or older) Americans not employed was about 102 million at the beginning of this year, according to the Bureau of Labor Statistics. The total number not employed is 40 percent of the total adult, civilian non-institutionalized population, which President Trump has pointed to as a more realistic and comprehensive unemployment rate. The goal of his administration’s policies will be to reduce the total number and share of non-employed in the adult population.
Wages. Candidate and now President Trump has declared that wages earned by American workers are “too low” and has promised the creation of better paying jobs, which will lift the average wages earned by working-class Americans.
Economic Performance under President Trump is Mixed
So how has the economy performed under President Trump so far in 2017, according to the major criteria he himself has identified as measures of success?
On the politically sensitive trade deficit, the numbers so far in 2017 have actually grown worse from the administration’s perspective. In the first four months of 2017, according to the most recent FT900 report from the U.S. Census Bureau, the monthly trade deficit in goods and services has averaged $46.6 billion. That is a 13.4 percent increase from the average trade deficit for the first four months of 2016. Over the entire second term of the Obama administration, the monthly trade deficit averaged $40.8 billion.
On growth of the overall economy, change in real gross domestic product (GDP) in the first quarter of the year was disappointing. According to the most recent report from the U.S. Bureau of Economic Analysis, real GDP grew at a revised annualized rate of 1.2 percent in the first three months of 2017. That rate is well below the 3.0 percent growth target of the Trump administration and tepid even compared to the 2.1 percent annual growth during the preceding four years.
On creating millions of new jobs, the record for the first five months of 2017 has been underwhelming. According to the most recent Establishment Survey from the U.S. Bureau of Labor Statistics, net job creation during the first five months of 2017 has averaged 162,000 per month. That compares to a monthly average of 214,000 net new jobs created during the previous four years and the average of 208,000 a month needed to meet the goal of 25 million new jobs in the next decade.
On restoring manufacturing jobs to the U.S. economy, net job creation has accelerated so far under President Trump. In the first five months of 2017, according to the most recent BLS Establishment Survey, net manufacturing employment rose by 55,000, or an average of 11,000 net new jobs per month. That exceeds the monthly average of 8,000 net new manufacturing jobs created in the second term of the Obama administration, but it falls short of the more than 20,000 monthly average needed to create a net 1 million new manufacturing jobs during President Trump’s first four-year term.
On reducing the ranks of non-employed Americans, President Trump can point to genuine progress so far in 2017. According to the most recent BLS Household Survey, the total number of non-institutionalized civilian adults who are not employed (counting both the officially unemployed and those not in the labor force) fell by 478,000 from January to May, from 102.3 million to 101.8 million. [These numbers are six-month moving averages to smooth the monthly fluctuations in the BLS survey data.] As a consequence the more expanded non-employment rate ticked down from 40.2 percent in January to 40.0 percent in May.
On delivering wage gains for American workers, the record so far in 2017 is positive. According to the most recent BLS Establishment Survey, the “Total Private Average Hourly Earnings of All Employees, Seasonally Adjusted” has increased by 2.6 percent year over year in the first five months of 2017. That compares to average wage growth of 2.3 percent per year in the four years that preceded the Trump administration. While wage growth under President Trump remains ahead of inflation, it is only slightly stronger than what he inherited.
According to those six criteria President Trump himself has identified, the performance of the economy so far is mixed. Economic performance as judged by the president’s own promises has been strongest on reducing the ranks of non-employed, raising wages, and creating manufacturing jobs. The record has fallen short of his promises on reducing the trade deficit and on boosting economic growth and overall job creation.
Additional Comments on the Trump Era Economy
Three of the criteria identified by President Trump — growth of real GDP, net monthly job creation, and average wage gains — have been standard measures of economic performance for past presidencies. Other more conventional criteria that President Trump has chosen not to highlight include inflation, labor productivity, and the standard unemployment rate, known as U3. (I used all these indicators myself to rate the performance of the economy under President Obama and other recent presidents.)
The three other, less conventional criteria that President Trump has placed at the center of his economic agenda may prove difficult to achieve and in fact are in tension if not outright conflict with his other stated goals.
The trade balance is not a measure of economic performance but instead, as I’ve explained elsewhere, is driven by rates of national savings and investment. If economic growth and job creation accelerate, pressure will increase for the trade deficit to expand as the economy attracts foreign investment and consumer and producer demand for imports grows. If the administration seeks to impose barriers on imports in a misguided effort to shrink the trade gap, it will reduce the overall productivity of the economy, making sustained economic growth more difficult to achieve.
On the level and rate of non-employment, here the administration may be fighting long-run demographic trends. A large majority of those 94 million adult Americans not in the labor force are not employed because they either do not want to work or are not able to work. According to recent data from the Atlanta Federal Reserve, 44.1 million are older retirees, 15.5 million are in college or job training, 15.4 million are disabled, and 12.9 million are caring for family members at home. With 10,000 Baby Boomers retiring every day now through 2030, the ranks of adult Americans not in the labor force will tend to grow whatever the administration’s economic policies.
On manufacturing employment, President Trump has emphasized the wrong metric for judging America’s manufacturing success. Most of the manufacturing job losses in recent years were not because of import competition but because of productivity gains fueled by automation. No revising or scrapping of trade agreements will bring those jobs back. American factories are able to produce record output with fewer workers than in years past because American manufacturing workers are so much more productive. Adding a million or more manufacturing jobs is possible, but it will require that manufacturing output growth exceeds productivity growth in years ahead; that is possible but not likely given the trends of recent decades.
Finally, a huge caveat in this whole exercise is the fact that the ability of a U.S. president to determine the direction of the economy is limited, as it should be under our constitution. Presidents can propose certain policies, as President Trump has done, but it’s up to Congress to enact those policies. And, of course, the true source of innovation, growth, and job creation in our economy is not the government but millions of Americans seeking to improve their condition in a market economy. Presidents receive too much credit when the economy is performing well, and too much blame when it sputters.
Back in the 1980s, former New York City Mayor Ed Koch would greet his constituents on the street with the question, “How’m I doin’?” In the same spirit, we invite you to tune in each month to follow how well President Trump is doing in delivering on his major economic promises to the American people.
