I read two articles this week on the state of the US economy that President Barack Obama will be handing off to President-elect Donald Trump in late January. One article by Chris Matthews in FORTUNE argued that Trump will inherit the “Best Economy in a Generation.” This article echoed a December 2 column in The New York Times entitled “President Obama Is Handing a Strong Economy to His Successor.”
The other article I read on the same day this week, by Ray Keating in RealClearMarkets.com, argued that Obama will hand off the worst US economic recovery since World War II. This is a well-known fact, as you probably know. Today I will compare and contrast these two conflicting articles starting with the first one and its more upbeat assessment of the economy Trump will inherit.
The FORTUNE article is blatantly optimistic and cites several selectively chosen economic indicators to support its case. One of which is wage growth in the US which has been slowly ticking up the last few years based on data from the US Census Bureau.
In 2015, the Census Bureau reported that the typical American household saw the largest one-year increase in income since such records have been kept, back to 1968.
I would point out, however, that the same data shows real median household income (adjusted for inflation) is still below where it was in 2000 and 2007 as you see at left.
Next, the FORTUNE article points to the strength in the US labor markets over the past several years. Indeed, the US economy has been adding new jobs at a decent pace, with job growth over the past year posting the highest monthly average in an election year since George H.W. Bush won in 1988.
What the FORTUNE article fails to point out is the fact that the US population was apprx. 244 million in 1988 versus over 324 million today. Job growth should be substantially higher than it is at present.
The article also fails to mention the fact that over 8 million working-age adults have disappeared from the workforce since the Great Recession and the financial crisis in 2007-2009.
In fairness, the FORTUNE article did acknowledge that the US economy is experiencing very slow growth as measured by Gross Domestic Product (GDP).
While the US economy is now in much better shape than what Obama inherited eight years ago, GDP growth is still below 2% over the last year. And that includes the latest estimate of 3.2% annualized growth in the 3Q which will be revised again at the end of this month. The article would have readers believe that GDP growth will only get stronger in the months and years to come. That remains to be seen.
Looking at the GDP chart above, I don’t see how anyone could say that Obama will be handing over the “Best Economy in a Generation” as the FORTUNE columnist did.
The other article I noted above from RealClearMarkets.com (RCM) had just the opposite take on the economy Trump will be inheriting. In it, the author concludes: ”…it’s unmistakable that Mr. Obama is handing over a badly under-performing economy to his successor.”
The RCM article points out that real annual GDP growth since the end of the recession in mid-2009 has grown at less than half the rate it has in the past during periods of recovery and expansion. GDP has averaged a mere 2.1% during this recovery compared to the historic average of 4.3%. If growth during this recovery had matched the historical average, overall GDP this year would be apprx. $2.5 trillion larger.
As for the recent drop in the unemployment rate, from 5.0% in September to 4.6% last month, the RCM article points out that 78% of that reduction was due to people leaving the labor force altogether, rather than new jobs being created. Indeed, labor force participation and job creation have been woeful.
Employment as a share of the population in November registered a paltry 59.7%. If this employment-population ratio registered a more typical level prevailing before the recession (averaging 63%), we’d have 8.3 million more people working today.
The RCM columnist blames the weak economy on Obama’s policies of “hyper-regulation and tax increases” and diminished incentives for starting up, expanding and investing in business. I totally agree.
These two articles have a completely different take on the economy. As President Obama prepares to leave the White House, expect to hear a lot more of the FORTUNE spin on the economy, not the RCM version, as he tries his best to pad his disappointing economic legacy.
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