US Economy: Is It as ‘Great’ as Trump’s Touting?
On multiple occasions, Trump has said the US economy is doing phenomenally well, calling it “the greatest economy in the HISTORY of America.”
- The US GDP expanded by 1.8% in the second quarter. Donald Trump often says the US economy is doing very well.
On multiple occasions, Trump has said the US economy is doing phenomenally well, calling it “the greatest economy in the HISTORY of America” and “perhaps the best in our country’s history.” Yesterday, Trump tweeted, “Big progress is being made. America is respected again. KEEP AMERICA GREAT!” The US GDP expanded quickly last year and has continued to grow this year. It grew by 3.1% in the first quarter and 2.1% in the second quarter.
Barring the odd month, the US job market has been quite strong under Trump’s presidency. Unemployment is running near historic lows. The strong US economy prompted the Fed to raise rates four times last year. While the Fed lowered rates last month, that move had more to do with the global slowdown and trade uncertainty. When it lowered rates, the Fed said the US economy was resilient. Trump blames the Fed’s rate hikes for the US economy’s slowdown.
The International Monetary Fund on the US economy
It would be fair to say the US economy has been doing reasonably well. The IMF (International Monetary Fund) has lowered its global growth forecast but has increased its forecast for the US economy. The IMF blamed the global slowdown on the trade war, which has especially impacted China. Chinese stock markets have sagged this year. Last year, Chinese equity markets also underperformed global markets. The iShares China Large-Cap ETF (FXI) is down 1.1% this year. Meanwhile, the SPDR S&P 500 ETF (SPY) and Invesco QQQ ETF (QQQ) have risen 16.3% and 20.0%%, respectively.
Views on the US economy
Some observers support Trump’s views on the US economy. BlackRock CEO Larry Fink credited fiscal measures such as tax reform and deregulation for US economy’s recent strength. However, it’s widely believed the US-China trade war is hurting both the US and global economy.
How different sectors are doing
Consumer spending, which accounts for the biggest chunk of the US economy, has been performing well. US consumers aren’t holding back purchases, despite pundits predicting a recession. However, some sectors haven’t been as healthy. The manufacturing sector is sagging and corporate investments have been low. The US manufacturing PMI recently fell to its lowest level since 2009.
The US housing sector has looked somewhat weak considering the low interest rates, and US car sales have fallen. However, in our view, that weakness is global. Car sales are falling more slowly in the US than they are globally. And part of that decline may be due to ride-sharing apps such as Uber (UBER) and Lyft (LYFT). The availability of affordable rides lowers the need for owning a car. Despite car sales falling, Ford (F) and General Motors (GM) stock has risen this year.
Trade war is impacting US economy
The trade war has especially hurt business investments. The tax cut was expected to lift US corporate spending, and tariffs were expected to boost US manufacturing activity. However, both sectors look weak. Meanwhile, the tax cuts and trade war have cost the US economy, leading to higher costs for some companies. The US fiscal deficit as a percentage of GDP expanded to 3.8% last year. The deficit is expected to increase further this year.
We’re in what many say is an earnings recession. S&P 500 earnings fell YoY (year-over-year) in the first quarter, and are expected to fall again in the second quarter. That decline may be due to last year’s tax cuts. We should see better YoY numbers next year.
The US economy has been resilient despite global headwinds but is slowing down. While the Fed is doing its bit by cutting rates, the solution may lie in fiscal policy.