But a major external economic or geopolitical shock? So far, President Trump — and thankfully the rest of us — haven’t yet been tested.
That means we haven’t had to deal with however this administration might handle, or more likely bungle, such a challenge. And we likewise haven’t seen how resilient his political support would be if the economy continued to weaken.
Unfortunately, our luck could be running out.
Over the weekend, an attack on Saudi Arabian oil facilities knocked out about half of Saudi oil output, which translates to about 6 percent of total global production. The Saudi government has been scrambling to repair the damage, but it reportedly could take weeks or even months to return to full capacity. After this news broke, oil prices spiked 20 percent — the biggest intraday surge in nearly three decades — before scaling back on Monday.
In 2017, Trump inherited an economy well into recovery. For the most part, he managed not to spoil it. Job growth continued apace, and a deficit-financed tax cut provided a short-term boost to gross domestic product growth.
Recently, though, the U.S. economy has been showing signs of fragility.
Consumers are still the engine of the U.S. economy, but some measures of both consumer and small business confidence look troubling. Last week, a new Post-ABC News poll found that 6 in 10 Americans expect a recession within a year. Consumers also face a new tax on many goods, assuming Trump’s coming rounds of China tariffs actually materialize.
Now add to all this yet another blow to consumers in the form of higher gasoline prices if the spike in oil prices is sustained.
To be sure, gas prices have been relatively low lately. So even if voters blame Trump for slightly higher gas prices, they may not ditch him over that alone. The bigger threat is whether it could be the straw that breaks the back of the broader economy: thanks to both the initial oil shock itself, plus fears over whether our erratic and “locked and loaded” president will undertake military action that creates even greater supply disruption.
The U.S. economy is less sensitive to oil shocks today than it was when, say, Jimmy Carter was president. But it’s still sensitive.
“The shock is relatively new so we will have to see how long we stay at those elevated levels of oil prices,” says Torsten Slok, chief economist at Deutsche Bank Securities. “But in itself this oil shock can add to the negative sentiment already hanging over corporate America and the U.S. consumer from the trade war and slowing global growth.”
To be fair, some economists are more optimistic. Pantheon Macroeconomics chief economist Ian Shepherdson told me he thinks higher oil prices could boost overall growth. Higher prices could encourage oil companies to do more capital spending; that greater capital spending might more than offset any reduction in consumer spending.
Even if his take is correct, though, Shepherdson acknowledges that the “distributional effects might not be favorable to Trump.” Partly because it’s so capital intensive, the oil extraction industry today employs relatively few people and is unlikely to hire a lot more; and even if higher prices make Trump more popular with a few oilmen (and -women) in Texas, it might make him way less popular with consumers in Wisconsin.
We still don’t yet know the full effect of the attack, or what the White House perceives its political interests to be. Maybe oil markets will snap back to normal soon enough, and we won’t have to wait to see if Trump taps the strategic petroleum reserve or reverses his Iran strategy a few more times.
Even so, it still seems unlikely that Trump’s lucky streak will continue indefinitely. Which is why it would sure be nice if the U.S. economy were not so reliant on luck right now.