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US Economy Booms as Elections Near, But Who Gets Credit?

GDP grew at a 4.2 percent clip in the second quarter, the strongest in nearly four years and the fastest among advanced economies -- though it was helped by a few one-off factors that are unlikely to be replicated later in the year.

AFP

Updated:October 6, 2018, 10:28 AM IST
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US Economy Booms as Elections Near, But Who Gets Credit?
File photo of US President Donald Trump. (Image: AP)
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Washington: Control of the US Congress hangs in the balance in hard-fought midterm elections next month. And, even with a booming economy, the party in power does not have the wind at its back.

The lowest unemployment level in nearly 50 years has also not substantially lifted President Donald Trump's standing in opinion polls, and he remains among the least popular US leaders of the last 70 years.

Forecasts point to solid chances that Democrats could wrest control of the House of Representatives away from Republicans, drastically shifting the political landscape in Washington.

Below are some facts on the recent run of the world's largest economy.

How good is the economy?

Quite. By most measures, it is unusually strong. US Federal Reserve Chairman Jerome Powell said last week the outlook was "remarkably positive."

GDP grew at a 4.2 percent clip in the second quarter, the strongest in nearly four years and the fastest among advanced economies -- though it was helped by a few one-off factors that are unlikely to be replicated later in the year.

The last time the unemployment rate was this low -- 3.7 percent -- president Richard Nixon was enacting tax reform and The Beatles were breaking up.

Inflation is rising only slowly, but enough to eat into wages, which also are growing sluggishly.

Job creation through September has averaged 218,000 net new positions a month so far this year, the fastest rate since 2015.

Consumer and business confidence, as well as measures of services and manufacturing activity, are all at historically high levels.

But the housing sector, which can be a leading indicator in the economic cycle, appears in decline, with building and sales steadily weakening.

Wall Street also has been very happy for much of the past 20 months, repeatedly smashing records.

But economist Jared Bernstein, adviser to former Vice President Joe Biden, notes that prosperity has not been evenly shared.

Corporate after-tax profits rose 14.9 percent in the first six quarters of the Trump era, but mid-level hourly wages gained only 0.5 percent in the same period.

Credit to Trump or Obama ?

Economists caution against attributing economic performance, good or bad, solely to presidents.

Trump has forcefully claimed ownership for the current economy but it was former President Barack Obama who presided over most of the recovery.

"There's no question that there's a mixture of credit involved. President Obama took office during the worst downturn since the Great Depression," Douglas Holtz-Eakin, a Republican former director of the Congressional Budget Office, told AFP.

But Trump has slashed taxes and regulations to energize businesses, Holtz-Eakin said.

Following December's tax cuts and a big spending package enacted in February, the US economy does appear to be growing faster than it did in the prior two years -- for now -- and business investment picked up.

The International Monetary Fund in July forecast US growth of 2.9 percent for 2018, which would match the expansion in 2015 under Obama.

But as unemployment has fallen and available workers have become scarce, job growth has actually slowed under Trump.

Since January 2017, the economy had added 3.9 million jobs. But in the final 21 months of Obama's presidency, there were 4.5 million net new positions created.

And, since peaking at 10 percent in October 2009, the US unemployment rate has fallen 6.3 percentage points: 5.3 points of that was under Obama and just one under Trump.

What are the risks?

Predicting recessions is a notoriously difficult task. But economists say dangers to the US economy, and the odds of a downturn, are growing.

The trade war with China, America's largest trading partner, already is causing "chaos" for US electronics manufacturers, according to the Institute for Supply Management, with the hit to US supply chains likely to show up in economic data in the near future.

And there are no negotiations between Washington and Beijing currently scheduled.

As the Fed raises lending rates, there is a growing risk of popping an asset bubble created by years of easy money from the Fed -- and thus wiping out household wealth and tipping the economy into recession.

Economic contagion could also spread from emerging markets as they suffer capital flight, falling currency values and rising debt costs.

Record high global debt is a key risk flagged by the IMF, as it reached an all-time high of $182 trillion -- almost 60 percent higher than in 2007.
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