Sorry nogood
During the
State of the Union address on Tuesday, President Donald Trump tried to persuade Americans that the US economy is booming — and that it’s all thanks to him.
“In just over two years since the election, we have launched an unprecedented economic boom, a boom that has rarely been seen before. There has been nothing like it,” Trump said at the beginning of his speech. “An economic miracle is taking place in the United States.”
By the end of his speech, he’ll likely point to the low unemployment rate and
robust job growth as evidence of his business skills. He’ll probably remind Americans that the US stock market had a great month in January — even though 2018 was the
worst year for stocks in a decade. (He’ll also definitely leave out the fact that manufacturing jobs are far from “
roaring back to life” as a result of his new trade deals.)
Here’s the truth: The US economy under Trump is doing just fine. The president has overseen a slow but
steady economic expansion, albeit one that started under President Barack Obama.
There is one major problem, though — that growth
has mostly benefited the wealthiest Americans, while average workers have barely seen their paychecks grow.
Taking that into account, it’s no surprise that many Americans are concerned. Nearly half —48 percent — of Americans say they believe economic conditions are worsening, up from 45 percent in December and 36 percent in November, according to a January poll by
Gallup, a Washington, DC-based consulting firm.
Businesses have mostly welcomed the president’s hands-off approach to government regulation, but not all of them are benefiting from his agenda. The US steel industry is making handsome profits from steep tariffs his administration placed on
imported steel and aluminum last year. So are aluminum factories. Yet Trump’s obsession with taxing foreign goods has inadvertently
hurt farmers and US automakers that export their products overseas.
Even the GOP’s signature economic policy achievement, the Tax Cuts and Jobs Act, did little to
boost wages and
business investment.
However, the economy isn’t contracting, so things could be a lot worse. And it’s possible they might get that way. Wall Street banks are already preparing for the US economy
to slow down in 2019. The International Monetary Fund also expects the global economy
to cool down this year, partly because of the
trade dispute between the world’s two largest economies: the United States and China.
So, sure, Trump can take credit for overseeing steady economic growth during his first two years in the White House. But the story is more complicated than that. And
warning signs are flashing.
Here are five things to know about the state of the US economy.
The GOP’s tax cuts are ... meh
If there’s one economic policy Trump and his fellow Republicans in Congress oversold, it was the idea that cutting taxes would propel US economic growth into outer space.
In November 2017, the president assured Americans that slashing taxes on corporations and private businesses would provide the “
rocket fuel our economy needs to soar higher than ever before.” And when Trump signed the Tax Cuts and Jobs Act on December 22, 2017, in the Oval Office, he also promised that businesses would invest those tax savings in their businesses and give “
billions and billions of dollars away to their workers.” He pointed to a handful of big companies that promised to raise wages and give employees $1,000 cash bonuses — among them Walmart, Bank of America, and Comcast.
More than a year later, economic data shows that the tax bill’s benefit to workers was largely a mirage.
The left-leaning Economic Policy Institute recently
crunched compensation data from the Bureau of Labor Statistics, showing that the much-touted bonuses did little to boost workers’ paychecks. In the past 12 months, cash bonuses only gave workers an extra 2 cents in average hourly compensation, adjusted for inflation. (This does not include bonuses tied to productivity goals.)
Instead, US companies have
spent a record amount of money this year buying back shares of company stock, an effort to inflate their value for shareholders. US corporations have announced spending
$1 trillion on stock buybacks so far this year. That’s a 64 percent increase from 2017,
according to CNN Business. So it’s no mystery why the savings from the GOP tax bill didn’t trickle down to workers. Only a handful of companies (
34 from the Fortune 500) said they are using the tax savings to invest in US operations.
Economists do believe the tax bill helped boost overall economic growth — for a little while, at least. The economy was growing at about 2.2 percent a year since the end of the recession in 2009, and then hit 4.2 percent in the second quarter of 2018, right after the tax cuts went into effect. The third quarter was also strong, with a 3.5 percent increase. By the end of 2018, however, annual economic growth fell to 2.6 percent. Economists expect growth
to slow even more in 2019 and
fall even further in 2020.
Congressional Budget Office
So to recap, instead of rocket fuel, the tax cuts were more like a sugar high. They gave the US economy a brief jolt while triggering an $800 billion hole in the federal budget.
The stock market is ... yikes
Trump’s favorite measure of US economic health, the stock market, has been wildly unstable in recent months. The president loves to take credit when the stock market is roaring, but stays silent when it falls.
That’s exactly what happened in 2018.
Trump
bragged as the major stock indices reached record highs early in the year, insisting that the market was “
smashing one record after another.” But in the last few months of 2018, things went downhill, fast. It was, in fact,
the worst year for stocks since 2008 — the year the country sank into the Great Recession.
As
Vox’s Emily Stewart explained, some of the factors behind the slide had to do with Trump, and some didn’t:
The current economic expansion and stock market run (until recently) has been going on for so long — and so much longer than many economists expected — that investors have been wondering for quite some time when that luck would run out. It looks like a combination of global and domestic events are starting to convince Wall Street that time is now.
Trump’s
trade war with China is causing a variety of concerns, ranging from its
impact on US farmers to its
potential to raise consumer prices to its economic effects in both China and the US. Economic growth has
slowed in Europe and is
expected to slowin China next year.
Drama over Brexit is also causing ripples, as are
signals from the US Fed that it will continue to hike interest rates, potentially dampening the stock market and economy.
As the market plummeted from October through December, Trump was silent.
But he inadvertently showed what a bad year 2018 was for US investors in a tweet he posted last week,
celebrating that the Dow Jones Industrial Average hit 25,000 points.
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