Is it Really that Tremendous? Part II
Harsh Tiwari, Fiscal Policy Contributor
This article is the second installment in a series of three articles which seek to analyse the state of the United States economy under the Trump Presidency. As mentioned in the first part, this series uses two sets of criteria to coherently analyse the US economy. The first set of criteria includes economic indicators such as GDP and employment while the second set includes Trump’s fiscal and economic policies. The first article appraised Trump’s performance in regards to economic indicators such as economic growth, trade and inflation. This second article shall continue such an appraisal of Trump’s economic performance with regard to other economic indicators and will be followed by a final article on Trump’s economic policies.
The median household income has seen a significant rise between the months of February and April. A paper known as Household Income Trends, published by Sentier Research, states that “according to new data derived from the monthly Current Population Survey (CPS), median annual household income in April 2017 was $59,361, an increase of $590 (or 1.0 percent) over the March 2017 median of $58,771. Median household income at the beginning of the great recession in December 2007 was $58,155, so the current median is 2.1 percent above that level.” This is preceded by an increase of 1% in median household income in February 2017, from $58,126 in Jan’17 to $58,714 (see here for source). This data is presented in the graph below with the median household income during the Great Recession provided for comparison (x axis- months of 2017, y axis- median household income in $).
However, this might merily be the automatic recovery of the economy on its own rather than a result of Trump’s actions as President. The most important piece of evidence which indicates as such is the simple fact that none of Trump’s major economic policies have been implemented. However, what cannot be denied is that Trump’s rhetoric on being pro-business has led to a surge in optimism among businessmen, as indicated by the cheerful stock markets and such optimism can definitely be said to have contributed, even if marginally, to increasing household income.
Consumer spending has had a commendable record in Q1 of FY’17. Personal Consumption Expenditure for the first quarter of 2017, according to the Bureau of Economic Analysis, stood at $13,108.4 billion with a modest increase of 0.76% from the last quarter’s consumption expenditure which stood at $13,008.9 billion. This entails a year-to-year increase of 4.88%. Compared to FY’16, this data is much better. The year-on-year increase in consumption expenditure for Q1 of FY’16 was 3.30% while the increase in consumption expenditure for Q1 of FY’16 compared to Q4 of FY’15 was 0.47%.
This data on consumption expenditure must be read along with inflation. This is because a rise in prices i.e. inflation can lead to an increase in consumption expenditure on the same quantity of commodities without an actual expansion in demand for goods and services and thus the economy. Inflation in the first quarter of 2017, measured by the Consumers’ Price Index-Urban(CPI-U), went from 0.6% in Jan’17 to 0.1% in Feb’17 to -0.3% in Mar’17, as reported by The Bureau of Labor Statistics. Thus, inflation in the period under consideration has gone down greatly and this illustrates that the increase in personal consumption expenditure is actually indicative of a greater demand for goods and services. This growth, however, cannot truly be attributed to Trump, whose policies are yet to bear fruit.
According to The Fed, “Industrial production was unchanged in May following a large increase in April and smaller increases in February and March.The data put forth by The Fed on the Index of Industrial Production or IIP is summarized in the table below.
Month Change in IIP(in %)
This data clearly shows that there has been very little expansion in production and that industry is failing ‘bigly’. Trump’s rhetoric seems to not have had any effect on expanding production. Furthermore, manufacturing, which was responsible for a large part of the bump to the IIP in April has decreased by 0.4%. Along with this the year-on-year increase in the IIP is a very modest 2.2%. The only positive numbers seem to be found in mining and grains. The indexes for mining and utilities posted gains of 1.6 percent and 0.4 percent, respectively.Trump needs to deliver on his claims of expanding the manufacturing industry given its present state and he needs to do so quickly.
Investment and Financial Markets
The US financial markets have cheered Trump’s presidency. According to marketwatch.com, “The Dow DJIA, +0.11% has rallied 14.22% since Trump’s stunning Nov. 8 election victory over Democratic rival Hillary Clinton after a campaign promising a raft of Wall Street-friendly policies, including tax cuts, deregulation and a boost in infrastructure spending. (The S&P 500 index SPX, +0.03% has gained about 11.6% over that period, while the Nasdaq Composite Index, COMP, -0.22%, has climbed 16.5%.)”
This is the best performance booked by the Dow Jones Industrial Average in the postwar era under a first term president.
Gross Private Domestic Investment in the economy has expanded to the tune of 4.8% in Q1 of FY’17. This is moderate and shows that that the economy is on the right track to growth. However, with a GDP growth rate of only 0.7% in the quarter under consideration, investment needs to expand at higher rates for Trump’s aims of making America great again to be fulfilled.
This brings me to an end of the analysis of certain key economic indicators of the U.S. economy. The larger picture presented by the data here is mixed. The country shows a good rise in household income and consumer spending along with investment. However, this has not translated to any solid expansion of GDP or employment. In fact both these indicators provide a very bleak outlook along with the persistence of a large trade deficit and low industrial production. Thus, a conclusive picture can only be obtained by evaluating Trump’s policy and analyzing whether Trumponomics does much to stimulate the U.S. economy and if so to what extent. This task will be undertaken in the final article.
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