The Trump slump is coming — it may already be here
It appears this was the week where the economic fantasies put forth by The Man Who Lost the Popular Vote came back to reality. The headlines on Thursday were not pretty:
Wall Street Journal: U.S. Economy Had Less Momentum Heading Into 2019 as Corporate Profits Stalled
NBC News: Economy slumping faster than expected, with fourth-quarter GDP revised down
Washington Post: GDP revised downward for 2018 as U.S. economy shows more signs of slowing
As the headline of a New York Times analysis put it: “Trump Owns the Economy Now, for Better or Worse." Trump, both before and since taking office, has repeatedly promised to increase U.S. economic growth to 4 percent per year: “We're bringing it (the GDP) from 1 percent up to 4 percent. And I actually think we can go higher than 4 percent. I think you can go to 5 percent or 6 percent.” Putting aside legitimate concerns about the usefulness of GDP as a measure, we now know that Trump has failed, again, to not only reach 4 percent annual growth, but even to reach 3 percent.
The only way he got within shouting distance of 3 percent for 2018 was by enacting a budget-busting, $1.5 trillion bonanza of tax cuts aimed mostly at billionaires and millionaires that has done little other than lead to stock buybacks that pad the corporate bottom line. According to the Tax Policy Center, households in the top 1 percent will walk away with a bigger chunk of the benefits from Trump’s plan than will those in the bottom 60 percent combined. That kind of temporary economic growth reflects a “sugar high”—and any parent or caregiver knows what happens not too long after that sugar high goes away. The “headache” is coming soon.
Trump’s Rich Man’s Tax Cut passed in December 2017, and, as sure as your car goes faster when you step on the gas pedal, economic growth accelerated. It reached 4.2 percent in the second quarter of 2018, and Individual 1 crowed: "We're on track to reach the highest annualized growth in 13 years." His son—you know, the one who was happy to accept “dirt” about Hillary Clinton from Russian government officials—took a shot at his predecessor: "Remember when Obama said you need a magic wand to make that happen? Well 'abracadabra,' Obama. We're doing it." People who, unlike Don Jr., are actually employed as White House economic officials made similar promises of regular growth levels above 3 percent. Since then, it’s turned out to be less “abracadabra” and more “Avada Kedavra.”
As the graph to the right demonstrates, growth has fallen each of the subsequent quarters since Q2 2018. Even with their absurd tax policy—one whose negative budgetary consequences will be with us for years—Trump still couldn’t beat the strongest quarters achieved under President Obama, and 2018’s calendar year growth only matched Obama’s best year, 2015.
Furthermore, it’s the trend that matters most going forward, and that's really where it looks like the Trump slump is really going to hurt. Thursday’s revisions to economic growth in 2018’s fourth quarter did more than just render Trump’s tweetfrom a few days earlier—which claimed that growth was the best it had been in 14 years, completely non-factual—the report made clear that economic growth is slowing because of key factors, namely that consumer spending and business investment are weakening. There was even a 0.4 percent decline in corporate profits, the first since the first quarter of 2017. These are not good signs for 2019.
Even worse for Americans, these trends appear to be negatively affecting growth in the current year as well. Another report released this week showed consumer spending in January came in below expectations, growing only 0.1 percent, and the report revised December’s consumer spending down from a 0.5 percent drop to an even worse 0.6 percent decline. Personal income dropped 0.1 percent in January and rebounded only 0.2 percent in February, a fairly pathetic overall reading for the first two months of 2019. According to Reuters, the data overall:
“suggest[s] the economy was fast losing momentum after growth slowed in the fourth quarter...The weak consumer spending report extended the run of soft data ranging from housing starts to manufacturing that have flagged a sharp slowdown in growth early in the first quarter. The economy is losing steam as the stimulus from $1.5 trillion in tax cuts as well as increased government spending dissipates.”
Legitimate economic outfits, like the Federal Reserve and the International Monetary Fund, have significantly reduced their economic outlook for 2019 and beyond. And here’s Moody’s Analytics economist Mark Zandi: "2018 will be the high-water mark for growth in the Trump administration." Zandi predicted growth would slow to 1.1 percent next year, and sees a recession in 2020 as more likely to occur than not. Of course, Trump’s own political appointees are still apparently still unwilling to say anything that might contradict their boss. I know you’re as shocked by that as I am. After you’ve recovered, take a look at the graph to the right.
Although Donald Trump is, to put it mildly, not a normal president, we do know that incumbent presidents usually win reelection when the economy is strong (Clinton, Reagan) or at least improving after a crash that began under the other party’s watch (Obama).
Trump inherited a strong overall economy from Obama, one that featured low unemployment and quite manageable budget deficits (around 3 percent of GDP). If, after priming the pump—and doing so largely by sending billions of dollars up the economic ladder—Trump is running in 2020 with a slowing economy, growth levels at or below where they were when he took office, trillion dollar deficits as far as the eye can see, and rising unemployment, he’s going to have a very hard time convincing voters he should be re-elected on the basis of his economic record. Having had Republican majorities in Congress for his first two years, and thus having been able to implement his fiscal and economic priorities as well as his dangerous de-regulation policies—which he claimed would unleash growth—he won’t be able to run away from a Trump slump.
Between the race-baiting, the media-bashing, and, most recently, his renewed support for taking away health coverage from 20 million Americans by repealing Obamacare through the courts, Trump has demonstrated no interest in expanding his coalition. All these actions serve as Trump doubling down on his right-wing base.
The one thing that might, perhaps, help Trump bring in voters who didn’t go his way last time would be if he had a positive economic record in terms of growth—not that that would change the fact that his policies have benefited only a narrow slice of American households while doing little for the rest. Even if growth remains strong, the evidence that the economy will help him is dubious, as his approval ratings are lockedin a narrower range than that of any president since regular polling began. If the best he can do is 42 percent approval in the year that looks like it will be his strongest in economic terms, that does not bode well for his re-election prospects.
As Democrats, we want our country to succeed. Republicans may have no qualms about rooting for the economic policies of their opponents to fail, even in a time of economic crisis worse than any since the Great Depression. I still can’t fathom that Rush Limbaugh said, upon the inauguration of President Obama in 2009, that he hoped for the new president to fail. When a president’s policies don’t work, people we care about suffer, and the country we love is harmed. But we Democrats are not blind, and we will not pretend that failed policies are not failing.