Economic Activity: Are we doing better under President Trump?

 

Economics Without The B.S.**: 

[**  Double entendre intended.]

Well Trump has only been in office just under five months, so we need to give him a little more time before we make an evaluation – perhaps at the end of the year.  Opinions are mixed on the outcome we will have as they read the current data of a somewhat slowing economy, with some more positive while others are negative.

I don’t think anybody really knows the outcome of how the tariffs will play out, and that includes President Trump and his own people.  We have a very big economy, with many sectors, and international trade – both exports and imports – being only around 30% of our GDP, with exports around 12% and imports around 15% to 20% prior to Trump getting into office.  Still, we have a lot of economic activity that is indirectly tied to international trade. 

Trump and his people are trying to remake our economy, and after five months that appears to be happening.  For the past twenty-five years – since 2001 – we have had difficulty achieving economic growth rates above 3%; and our historic average is well above 3.5%.  We just had a report from the Atlanta Federal Reserve’s GDPNow that this quarter’s growth rate is humming along at close to 4% -- that’s where it stands right now, it is not a prediction of where it will be at the end of the quarter.  But their model has been pretty elevated most of this quarter, which started in April right after Trump’s “Liberation Day” where he imposed very high tariffs.

How did we get to around 4% Real GDP growth if most people think our economy is slowing; some even said it was shrinking?  Well here is their report today.

And let’s make a comparison to the report one month ago.

Notice that one month ago -- May 8th -- the GDPNow number was 2.3% and Net Exports was a negative number, because we had more imports than exports, and in the GDP accounting that results in a negative number for the Net. Today -- June 9th -- the GDPNow number is 3.8% and Net Exports are a positive number, over 2%. That change in the Net number from a negative (-0.6%) to a positive (2%) explains most of the difference between a 2.3% GDP and a 3.8% GDP -- Consumer Spending also slowed from 2.3% to 1.7%, with the other factors for investment, private inventories, and government spending fairly constant.

So the irony is that while the productivity, as measured by the GDP (Gross Domestic Product), took a big increase, the economic activity actually decreased because we had less imports coming into our economy and this was not made up by increasing our exports – less than a 2% increase from last quarter – or our domestic consumption and spending.

We will see if this continues.  If it does, President Trump and his people are going to be in for a big surprise.  And I would not expect the GDP numbers to stay elevated – above 3% -- if our economic activity is shrinking.

How could we tell?  Well we could look at some other indicators beside measuring broad based productivity like the GDP.  We could look at employment – if the economic activity is picking up, even though Imports are decreasing, we would expect more jobs to be created.  

Doesn't look very good at present when you compare it to some of the better times like the '60s or 1990s; does it?

We could look at Industrial Production.  President Trump said the reason for the tariffs is to get more investment in our own economy.

Doesn't look much better, does it?

And we could look at incomes and personal spending.  If economic activity is picking up we should expect, with more jobs, more spending following more income.

Kind of disappointing, isn’t it?  I would say Mr. Trump and his associates have some work to do.  Let’s wait till the end of the year to make our evaluation.