Trump takes credit for boom but it may not last

Fed officials and other forecasters expect US growth to slow even more this year

President Donald Trump speaking at a defence manufacturing plant in Ohio on his successes in the economy last week. White House officials see growth staying above 3 per cent for the next few years - and potentially for an entire decade, if he can con
President Donald Trump speaking at a defence manufacturing plant in Ohio on his successes in the economy last week. White House officials see growth staying above 3 per cent for the next few years - and potentially for an entire decade, if he can continue carrying out his economic agenda.PHOTO: AGENCE FRANCE-PRESSE

WASHINGTON • United States President Donald Trump is getting exactly what he wants on the economy, but it may not last.

The Federal Reserve has abruptly stopped its march towards higher interest rates, as Mr Trump demanded. The tax cuts he signed in late 2017 are in full swing. His attempt to rewrite the global rules of trade are under way, and he proclaims himself happy with the array of new tariffs he has imposed. His recent comments suggest he is unconcerned about slowdowns in China and Europe, which he considers economic rivals.

But while Mr Trump points with pride to last year's economic growth and promises even faster growth to come, there are signs that his most dependable talking point is eroding. On Thursday, the Commerce Department issued a downward revision of its estimates for economic growth in the fourth quarter, pushing one measure of the full year's growth down as well.

Forecasters outside the White House, including officials at the Fed, expect growth to slow even more this year. Economic data suggests that slowdown is already under way in the first quarter. Manufacturing is losing some of its steam from last year's rapid growth, and job creation is also moderating. CEOs of some of the US' biggest firms see investment, hiring and sales growth all slowing this year.

Three-quarters of business economists say they are more worried about growth undershooting their forecasts than overshooting it, and half have revised those forecasts downwards for this year.

White House officials see growth staying above 3 per cent for the next few years - and potentially for an entire decade, provided Mr Trump can continue carrying out his economic agenda, including another round of tax cuts, a US$1 trillion (S$1.35 trillion) infrastructure plan and additional deregulation.

"The economy is roaring," Mr Trump said on Thursday night at a rally in Grand Rapids, Michigan.

"Our country has never done better economically."

His re-election could hinge on whether he is right about the economy, and nearly every other forecaster is wrong. If he is correct and growth surges again, he will enter 2020 with arguably the strongest economic record of any incumbent facing re-election since Mr Bill Clinton in 1996. But if he is wrong and the economy cools, Mr Trump will have no one to credibly blame.

The Democrats who control the House have no desire to pass another round of tax cuts.

The Fed, which has slowly raised rates to a range of 2.25 to 2.5 per cent, has relatively few tools available to help lift the economy from a sharp downturn. Some Fed officials have begun to warn that they might need to cut interest rates later this year - further reducing the Fed's ammunition to fight a recession - if growth disappoints.

"At the moment, the risks from the downside scenarios loom larger than those from the upside ones," Mr Charles Evans, the president of the Chicago Fed, said on Monday in Hong Kong. "If activity softens more than expected, or if inflation and inflation expectations run too low, then policy may have to be left on hold - or perhaps even loosened."

World is slowing, not the US, says Trump

Last week, Mr Trump again raised his bet on his ability to fuel a continuing boom in growth. He said he would nominate Mr Stephen Moore, an architect of his campaign economic platform and a fellow critic of the Fed's recent interest rate increases, to a seat on the Fed's board of governors. If confirmed, Mr Moore would press officials to reduce rates in hopes of pushing annual growth to 4 per cent.

On Thursday, the Commerce Department said the economy slowed more sharply at the end of last year than previously reported, revising its estimate of fourth-quarter growth to 2.2 per cent from 2.6 per cent because of weaker spending by consumers and state and local governments, among other factors.

  • 3%

  • White House officials see growth staying above this rate for the next few years - and potentially for an entire decade, provided US President Donald Trump can continue carrying out his economic agenda.

Growth for the full year - as measured from the fourth quarter of 2017 to the fourth quarter of last year - stands at 3 per cent, down a bit from the initially reported 3.1 per cent but still enough to allow Mr Trump to claim to have achieved the first year of 3 per cent growth since 2005. "We're doing a good job," he said in an interview last week on Fox Business Network. "And I think we have tremendous momentum right now. And you're right, the world is slowing, but we're not slowing." He added that "if we didn't have somebody that would raise interest rates and do quantitative tightening", growth have been at over 4 per cent.

Fifty-six per cent of Americans approve of Mr Trump's handling of the economy, Gallup reports, the highest mark of his term and the best for a president since Mr Barack Obama registered the same rating in March 2009. Surveys of consumer confidence remain strong, including a confidence index conducted for The New York Times by online research firm SurveyMonkey, which has gained strength since Mr Trump took office.

Unemployment has dipped to 3.8 per cent. Inflation remains subdued, and wage growth is accelerating.

White House economists say the tax cuts Mr Trump signed in 2017, for businesses and individuals, deserve much of the credit for the economy's performance - and that they will deliver another strong year of investment and hiring.

Outside economists are more pessimistic, citing drags on growth from Mr Trump's trade policies, slowdowns abroad and a fading consumer spending boost from the tax cuts. Fed officials said this week that their median prediction is now for 2.1 per cent growth for the year. Their projections also foresee no interest-rate increases this year - compared with two in December and in line with his desire to halt rate increases - and officials announced they would end the reduction of their asset purchase programme sooner than markets had expected.

"I don't believe there's a lot of room for criticism if you believe the Fed should be easy this year - they are," said Ms Ellen Zentner, chief US economist at Morgan Stanley.

"The Fed has completely removed themselves from the equation, both in their rates path and their balance sheet," said Ms Zentner, who forecasts 1.7 per cent growth this year, largely as a result of slowing investment growth.

That would mark a return to the Obama-era growth levels that Mr Trump has said are now over.


A version of this article appeared in the print edition of The Straits Times on March 30, 2019, with the headline 'Trump takes credit for boom but it may not last'. Subscribe