Tuesday, February 06, 2018
Dean Baker: Donald Trump is a malevolent version of Mr. Magoo. For all his offensive comments and mean-spirited policies, it's obvious that most of the time he has no clue about what is going on. Trump's Magoo-like behavior carries over to his claims about the economy. By almost every measure, we are merely seeing the continuation of trends from the Obama years. In spite of Trump's get-tough rhetoric on trade, the trade deficit actually rose by $50 billion in 2017 to $571 billion. It now stands at just under 3.0% of GDP. Nonetheless, the economy is looking pretty good, at least by the standards of the last forty-five years. With the exception of the year 2000, the unemployment rate has not been this low since the early 1970s. Donald Trump will undoubtedly continue to boast about his great economy. He is right about the economy looking comparatively good, but the credit belongs to Federal Reserve Board Chair Janet Yellen and President Obama, not to Mr. Magoo in the White House.
171,000 jobs a month were created in 2017. That is down from 187,000 a month in 2016 and 226,000 jobs a month in 2015. The unemployment rate was down to 4.1% at the end of 2017, compared to 4.7% at the end of 2016. The unemployment rate has been on a consistent downward path since it was at 9.8% in November of 2010 (roughly a drop of 0.8 percentage points a year), so the decline in 2017 is consistent with that ongoing Obama pattern. In the case of real wage growth, there has been a modest deceleration, with the inflation-adjusted hourly wage rising by 0.4% from December 2016 to December 2017. That compares to an increase of 0.8% in 2016 and 1.8% in 2015. This slowing is due to higher world energy prices. Higher world energy prices are not Trump's fault, but there is nothing for which he can take credit. There was a modest uptick in GDP growth, with a rise of 2.6% last year, compared to 1.8% in 2016 and 2.0% in 2015. Nonresidential investment was the major factor in the speedup, growing at a 6.3% in 2017, compared to just 0.7% in 2016, and 0.3% in 2015. While the Trump administration might want to attribute this uptick in investment to America being great again, the data tell a different story. The pickup in investment spending was largely due to increased spending on oil and gas drilling. This in turn is explained by the jump in world energy prices. If we pull out the energy sector, investment in 2017 grew at much the same rate as it did in the last three years. As far as the Trump tax cut, it is still too early to assess the response, but so far it doesn't look we will see the promised investment boom. New orders for investment goods actually slipped slightly in December, coming in 0.1% below their November level. If companies really are as responsive to tax rates as the Trump administration claims, they should have had plans that were ready to go as soon as it was clear that tax cuts would be approved. Since passage of the tax cut was fairly certain by the middle of last month, at least some companies should have been able to get their orders in before the end of December. The data indicate there was no such rush. Real wages have been rising for the last three years, the only time this has been the case since the early 1970s, also with the exception of the late 1990s. And the biggest gains during this period have gone to those at the bottom of the wage ladder. In the last three years, earnings for the median worker have risen by 5.3%. Earnings for workers at the 25th percentile (a worker who earns more than 25% of workers and less than 75 percent) have risen 7.1%, and by 5.0% at the 10th percentile. There is also some evidence that the tighter labor market is leading to stronger productivity growth as firms attempt to use labor more efficiently. Productivity grew at more than a 3.0% annual rate in the third-quarter, compared to growth at less than a 1.0% rate in the prior five years. We will need more data to determine if we are on a faster productivity trend path. It's a huge deal if we are, since faster productivity growth will allow much faster growth in wages and improvements in living standards.
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