Trump lags behind his predecessors on economic growth

U.S. President Donald Trump speaks during a roundtable on tax cuts for Florida small businesses in Hialeah, Florida, U.S., April 16, 2018. REUTERS/Kevin Lamarque - RC1D875B4E00

In recent months, President Trump has tweeted that economic growth under his presidency “is better than it has been in many decades,” “the Economy is raging at an all-time high, and is set to get even better,” and “It has been many years that we have seen these kind of (economic) numbers.”

While some hyperbole is a matter of opinion, Trump’s claim that his stewardship of the economy puts his predecessors to shame can be checked by public information that is readily available to all. In fact, the data show that compared to his predecessors, Trump’s record so far falls somewhere between unremarkable and substandard. Moreover, other economic data suggest that the current expansion will likely wind down before his term ends, and his boasting will ring hollow once the economy slips into recession.

It is commonly said that a President deserves some credit or blame for the economy’s performance only after he’s been in office about six months. On those terms, let’s measure Trump’s words against the record for real GDP growth over the last three quarters (July 2017 through March 2018). Over those quarters, GDP has grown at an annual rate of 2.6 percent. Comparing that pace to his last nine predecessors over comparable periods in their first terms,  Trump here bests the four presidents who faced recessions in their first year in office (Barack Obama, George W. Bush, Ronald Reagan and Richard Nixon). Trump’s other five predecessors came to office, as he did, during economic expansions. Among them, he’s tied for last place: Real GDP growth under Trump over the three quarters has lagged Bill Clinton, Jimmy Carter, Lyndon Johnson and John Kennedy, and tied George H.W. Bush, as the data in the following table shows.

The Early Economic Records of Presidents from Kennedy to Trump
President GDP Business Investment Investment in Equipment
Kennedy 7.0% 8.3% 14.2%
Johnson 6.3% 10.7% 11.9%
Nixon 0.0% -1.6% -0.3%
Carter 2.7% 8.2% 12.2%
Reagan -2.1% 3.0% -3.0%
Bush-1 2.6% 0.5% -0.2%
Clinton 3.5% 7.7% 13.5%
Bush-2 1.1% -4.7% -6.1%
Obama 2.2% 1.5% 14.7%
Trump 2.6% 5.9% 9.0%

Source: Bureau of Economic Analysis. These measures represent annual growth rates of real GDP, business fixed investment, and investment in equipment over the three quarters from each president’s third, fourth and fifth quarters in office.

Like all of those predecessors, Trump promised to reform regulation and boost business investment, because such measures can stimulate faster growth. Moreover, if the new investments focus on productivity-boosting equipment, they also can help raise people’s incomes. Through all of last year, Trump and his advisors insisted that business investment would soar once he cut onerous regulations and Congress slashed the corporate tax rate.

So, Trump devoted much of his first six months in office to rolling back regulations and much of the next months on his single major legislative achievement, sharp reductions in taxes. The table above shows what has happened to business investment generally and to new investments in equipment over the last three quarters, again compared to the results in comparable periods under his predecessors. On overall business investment, Trump’s record again beats the four presidents who faced recessions in their first year in office (Obama, Bush-2, Reagan and Nixon), plus Bush-1)—hardly a heavy lift—and trails his four other predecessors (Clinton, Carter, LBJ and JFK). On investment in equipment, the comparisons are the same except here he trails Obama as well the four other Democratic presidents since 1960.

Many economists (myself included) pointed out that Trump’s tax and regulatory changes would likely have little effect on investment. The truth is, U.S. companies had been able to borrow the funds to invest for virtually nothing for a decade, adjusting for inflation. So, there was little holding them back from investing here except a shortage of attractive opportunities, and Trump’s changes didn’t alter that reality in any meaningful way.

Trump’s middling record on GDP and investment raises the question of how much longer the current expansion, now just two months shy of entering its tenth year, can last. Developed economies move in business cycles, and so they weaken eventually as a matter of course. That’s where the United States is today. This late in any economic expansion, the pool of available workers for new jobs is modest, most attractive investment opportunities have been taken, and any pent-up consumer demand for large durable purchases has been exhausted.

No economist, much less any politician, has a test or technique to accurately predict the onset of a recession. One important reason is that a recession usually requires a shock that tips a weakening economy into a contraction. In recent decades, those shocks have come from sudden increases in oil prices, a precipitous housing decline, and aggressive interest rate hikes by the Federal Reserve. So, Trump has to bet his reelection hopes not only on somehow getting a pass from the Mueller investigation. He also will have to trust that the Fed doesn’t double down on raising interest rates, that we can avoid a trade war and a crisis involving Korea, Syria or Iran, and that some other, yet-unforeseen development doesn’t tip the balance.