IS IT REALLY THAT TREMENDOUS? Part I
Harsh Tiwari, Fiscal Policy Contributor
The firm setting of general policy positions finds itself clearly established by the time a President has completed more than three months in office. This period educates a President on the problems faced by the nation, the solutions to such problems and the feasibility of different policy approaches to a problem. Donald Trump has completed more than four months in office and his stances on the economy turn out to be Reaganite in character and Keynesian in spirit.
Trump, as he has mentioned in his campaign and thereafter into his young Presidency, wants to spur economic growth. To put it in his own words to The Economist, Trump wants to “prime the pump.” Thus, Trump’s commitment to the economy, his generally big-government approach to economic policy and the time given to him to formulate such an approach into cogent policy makes an analysis of the American economy under Trump justifiable, critically examinable and evidently necessary. It is in light of this that I ask whether the persistently repeated word-‘tremendous’ really applies to the economy or not and I seek to answer this question using a three-part series of articles.
Trump’s economic performance needs to be analyzed using two sets of criteria, the first set of criteria needs to include economic indicators such as GDP and employment while the second set needs to include Trump’s fiscal and economic policies. This kind of a two-pronged approach is necessary for us to have the whole picture. The first two articles in this three part series will seek to examine Trump’s economy using credible macro-economic indicators. The final article will seek to analyze Trump’s economy by examining the prudence of his economic policies with special regard to his approach towards solving the problems potentially exposed in the first two articles.
An analysis of Trump’s jobs performance is especially important due to his oft-repeated pledge of being the “biggest jobs President” of America. However, there seems to be a great degree of hollowness in the persistence of this pledge given its mixed results. The Bureau of Labor Statistics in its Employment Situation report paints a grim picture for national employment in May. According to the May’17 Employment Situation, “The unemployment rate, at 4.3 percent, and the number of unemployed persons, at 6.9 million, [has] changed little in May. Since January, the unemployment rate has declined by 0.5 percentage points, and the number of unemployed has decreased by 774,000.
This is deplorable, especially when we see the high standards that Trump has set for himself in regards to his ability to create jobs. Furthermore, among the unemployed, the number of job losses and persons who completed temporary jobs declined by 211,000 to 3.3 million in May. The number of long-term unemployed (those jobless for 27 weeks or more) was essentially unchanged over the month at 1.7 million and accounted for 24.0 percent of the unemployed. (See tables A-11 and A-12.) The labor force participation rate declined by 0.2 percentage points to 62.7 percent in May but has shown no clear trend over the past 12 months. The employment-population ratio also edged down to 60.0 percent in May.
President Trump has yet to fully implement policies to spur growth and employment. Trump’s massive infrastructure plan of $1 trillion has great potential to provide employment and expand growth. Although this plan is likely to find bipartisan traction in Congress it seems to be delayed by the never-ending adversarial relationship between Trump and Congress.
The only real positive impact Trump seems to have had on employment is in the mining sector, which added 7000 jobs in May. However, this may only be due to Trump’s general policy rhetoric on the mining sector rather than the result of tangible measures adopted by Trump, given none have truly been adopted.
According to the Bureau of Economic Analysis’ most recentreport, “Real gross domestic product (GDP) increased at an annual rate of 1.2 percent in the first quarter of 2017 (Fig. 1), according to the "second" estimate released by the Bureau of Economic Analysis. In the fourth quarter [of 2016], real GDP increased 2.1 percent.” This is an upward revision of the advance estimates of the annual rate of GDP increase for Q1 of 2017, which was estimated to be 0.7% earlier. “With this second estimate for the first quarter, the general picture of economic growth remains the same; increases in nonresidential fixed investment and in personal consumption expenditures (PCE) were larger and the decrease in state and local government spending was smaller than previously estimated. These revisions were partly offset by a larger decrease in private inventory investment.”
This data shows a very dismal picture. The only slightly positive indicator seems to be the Gross Domestic Income (GDI). Real gross domestic income (GDI) increased 0.9 percent in the first quarter, in contrast to a decrease of 1.4 percent (revised) in the fourth. The average of real GDP and real GDI, a supplemental measure of U.S. economic activity that equally weights GDP and GDI, increased 1.0 percent in the first quarter, compared with an increase of 0.3 percent in the fourth quarter.
The growth picture becomes much worse when the data from this report on Corporate Profits is taken into account. Profits of domestic financial corporations decreased $28.4 billion in the first quarter, in contrast to an increase of $26.5 billion in the fourth quarter. Profits of domestic nonfinancial corporations decreased $18.4 billion, compared with a decrease of $60.4 billion. While the data here on the profits of nonfinancial corporations is much better than that of the last quarter, we cannot necessarily claim it was a result of the Trump Presidency.
Trump’s stances on trade have been strong and categorically elucidated his desire to cut trade deficits. However, these stances have not turned into policy and results. According to the Bureau of Economic Analysis’, U. S. International Transactions report, yhe U.S. current-account deficit decreased to $112.4 billion (preliminary) in the fourth quarter of 2016 from $116.0 billion (revised) in the third quarter of 2016. The deficit decreased to 2.4 percent of current-dollar gross domestic product (GDP) from 2.5 percent in the third quarter.
Furthermore, another BEA report points out that the goods and services deficit was $43.7 billion in March, down $0.1 billion from $43.8 billion in February. March exports were $191.0 billion, $1.7 billion less than February exports. March imports were $234.7 billion, $1.7 billion less than February imports. This modest decrease in the Current Account Deficit and marginal decrease in the Trade Deficit contributes to greater sluggishness in the US economy and begs the question as to whether America truly is being put first
However, there are many strides being made by Trump that may propel the further decrease in the current account/trade deficits that could show material improvement in the US economy. For instance, according to CNBC, Trump has signed two executive orders which can help increase trade. The first commissions a report on trade practices that contribute to the trade deficit, while the second seeks better collection of anti-dumping and countervailing duties. The report, spearheaded by the Commerce Department and U.S. Trade Representative, aims to identify every trade abuse and "non-reciprocal practice" that contribute to the trade deficit. Within 90 days, the report will go back to the Oval Office detailing specific causes for the deficit, country by country, product by product.
Both these measures are welcome. The policy on trade needs to be re-calibrated with policy tailored for specific countries in order to reduce the deficits. Anti-dumping duties and ccounter-vailing duties seek to reduce the competitiveness of cheaper imports by taxing them. A better collection of these duties is very necessary to reduce the competitiveness of imports in domestic markets and thus bring down deficits. Steps such as these are necessary if Trump really wants to put “America First.”
“The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in April on a seasonally adjusted basis,” the U.S. Bureau of Labor Statistics reported. According to this BLS report, increases in indexes for shelter, energy, tobacco, and food all contributed to the monthly increase in the all items index. The energy index rose 1.1 percent, with all 3 of its major component indexes rising. The food index rose 0.2 percent, mostly due to a sharp increase in the index for fresh vegetables.
While an unforeseen and radical increase in prices of items is in no way a great impetus to economic growth, it is well-known that a below two percent inflation in an economy goes a long way in showing that the economy is neither enhancing productivity or consumer spending. Thus, a meager 0.2% increase in the CPi-U shows that Trump has not caused much expansion in production. A point that gains much more credence when we look at the facts presented to us above.
By this point, readers should find themselves troubled by very many doubts about America’s economy under Trump. However, I would remind such readers of the presumptuousness of holding such doubts. There exist many more economic indicators which require analysis before any conclusions are arrived at. I request readers to reserve their judgement before other economic data is appraised and Trump’s economic policy scrutinised in the forthcoming articles.
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