— Former president Barack Obama, in remarks at the University of Illinois, on Sept. 7, 2018
There’s little doubt that the economy is doing well. Regular readers of The Fact Checker know we automatically award Two Pinocchios to anyone who gives sole credit to a president for economic improvements. That’s because the U.S. economy is complex, and the decisions of companies and consumers often loom larger than the acts of government.
That hasn’t stopped President Trump from trying to take credit. He called the economy a disaster during the campaign. Now, he brags about the low unemployment rate, the positive jobs reports, the booming stock market and growth in the gross domestic product. He often attributes the good numbers to the tax bill he pushed through Congress, his deregulatory agenda and growing business confidence under his tenure.
This boasting has apparently begun to annoy Obama, who argues that Trump is simply surfing off the economy that emerged after the Great Recession — which was going on when Obama took the oath of office.
The White House did not respond to a specific question about Trump’s assertion of an economic turnaround, but an official did provide data making the case that Trump exceeded expectations for the economy at the time of Obama’s departure.
We’ve previously compared U.S. economic performance under Obama and under Trump during Trump’s first year in office. But overseeing a strong economy is not the same as accomplishing a “turnaround.” Can Trump take credit? Or did today’s trends start before he took office?
There isn’t one factor alone that makes an economy “good” or “bad.” A thriving economy is felt (or not felt) in a multitude of ways. Let’s examine a variety of measures looking at where the economy was when Obama took office, when Trump took office and where it is now.
Trump regularly (and incorrectly) brags he’s added 4 million jobs since taking office. Regular readers may remember we gave the president Two Pinocchios for claiming that he created 1 million jobs about six months into his term.
According to the Bureau of Labor Statistics, the U.S. economy added 2,188,000 jobs in 2017 — Trump’s first year in office. So far, it has added 1,306,000 jobs in 2018. But the economy added more jobs in every year of Obama’s second term than it did in Trump’s first year. This holds true when examining the average number of jobs added per month. (We are counting average monthly jobs created from February to January because the January data is collected the week of Jan. 12, before a president takes the oath of office on Jan. 20.)
The monthly numbers suggest Trump is continuing an existing trend. But a White House official argues this is unfair because the nation is at full employment. Before Trump’s election, the official noted, the Congressional Budget Office at the start of 2017 predicted job growth of about 160,000 per month in the first half of 2017, 116,000 per month in the second half of 2017 and 94,000 jobs per month in 2018. So Trump is doing much better than CBO’s 2017 estimates.
The unemployment rate is the best it has been in a decade, holding steady at 3.9 percent in August. Shortly after Trump took office in February 2017, the unemployment rate was 4.7 percent. It has declined at a faster pace than the Congressional Budget Office predicted at the beginning of Trump’s term, but the unemployment rate had already stabilized. It was ranging between 4.6 and 5 percent starting in August 2015. That represents over a five-point decline since unemployment peaked at 10 percent in October 2009, nine months after Obama took office.
During the campaign, Trump argued that this measure was “totally fiction;” this argument earned him Four Pinocchios. He often pointed to people who had given up looking for work to back up his claim. Looking at another variation of the unemployment rate, the U6 number, which takes this into account, unemployment was 7.4 percent in August, down from 9.2 percent when Trump took office. Still, that’s a far cry from its peak — 17.1 percent in October 2009.
Employment in population (ages 25-54)
Another indicator of economic growth is the percentage of people employed during their prime working years. In December 2009, right before the end of Obama’s first year in office, 74.8 percent of adults between 25 and 54 were employed. The years 2010 and 2011 marked the indicator’s low points, averaging 75.1 percent each year. But by the time Obama left office, that yearly average had rebounded to 77.9 percent. The ratio continued to climb through 2017, averaging 78.6 percent for the year, and 2018 is on track to be the best year in a decade.
During the 2016 campaign, Trump said the stock market was “in a big, fat bubble.” (Stocks have been rising steadily since March 2009.) But once he took office, he was first to point out any record-setting days. As we’ve previously noted, Trump regularly cites data from the Dow Jones industrial average, a collection of 30 U.S. “blue chip” companies. But the Standards & Poor’s 500 stock index provides a more nuanced data set. Comparing the S&Ps performance with similar markets since just before Trump took office, the S&P 500 (represented by the dark blue line) narrowly edged out Japan’s Nikkei 225 index (represented by the purple line) for the largest percentage of overall growth, while the German and British markets declined (light blue and pink lines, respectively). As of midyear, the Japanese and German markets had kept pace with the United States, but in recent months, the U.S. stock market has posted gains that have put it ahead.
Over the course of Obama’s first year in office, GDP dropped 2.5 percent. In 2010, GDP growth recovered, surging 2.5 percent. Growth was already positive when Trump took office, jumping from 1.6 percent in 2016 to 2.2 percent in 2017. Trump might point us to quarterly GDP growth. The economy is estimated to have gained 4.2 percent in the second quarter of 2018, but that still pales in comparison with the 5.1 percent and 4.9 percent growth in the second and third quarters of 2014 under Obama.
Still, Trump has beaten the expectations set by the Obama administration, which at the start of 2017 predicted growth of 2.4 percent in 2017 (fourth quarter to fourth quarter) and 2.3 percent in 2018. The big difference is Trump’s tax cuts and the huge spending bill he signed, which economists estimate added almost 1 percent in short-term GDP growth. Most forecasters did not raise long-run growth projection after passage of the tax cut; falling unemployment rates make it even more difficult to sustain economic growth at the current level.
Another measure of an economy’s health is the deficit-to-GDP ratio. In other words, how much a country is earning vs. how much it is spending. The measure ballooned to 9.8 percent in 2009 when the recession was at its peak and the stimulus act was passed. By 2016, it had gone down to 3.1 percent. In Trump’s first year, it went up to 3.4 percent. That’s unusual, because the economy is doing well, but it reflects the impact of Trump’s tax cut on government revenue. The increase in the federal deficit may make it hard for the government to respond to the next economic crisis. So if Trump is taking credit for the impact of the tax cut on economic growth, he needs to accept blame for the boost in the deficit.
Wage growth is one of those instances where just because Trump repeats a statistic a lot doesn’t make it accurate. Regular readers may remember Trump earning Four Pinocchios for his claim that “wages are now, for the first time in many years, rising.”
Seven months after that fact check, our conclusion is largely the same. Real median wages for all workers have been steadily increasing since 2014. In the last quarter of 2017, they plunged below their rate when Trump took office but have since recovered to about the same level. In other words, after an initial bump, wages are basically where Obama left them.
The poverty rate isn’t something that Trump claims as a turnaround — or talks much about. A recent report from the U.S. Census Bureau shows the official poverty rate dropped 0.4 percentage points in 2017 to 12.3 percent. This marks the third consecutive annual decline, having fallen 2.5 points since 2014. Again, the trend that formed during Obama’s last years continued through Trump’s first.
And, as we’ve noted before, scholars increasingly believe that the official poverty estimate is a bit misleading and not especially informative. This is in large part because transfer payments — like the Earned Income Tax Credit or food stamps — are not recorded as income, so their impact isn’t incorporated into the official figure. To assuage these concerns, the Census Bureau introduced a second poverty measure in 2011 — the Supplemental Poverty Measure (SPM). (This also has critics.) The SPM is declining at a slower rate than the official poverty rate, dropping 2.2 points since its peak.
Trump has, however, started to brag about the number of people coming off food stamps, as shorthand for people getting back to work and out of poverty. But experts say the decline isn’t entirely due to better economic times. Many states have rolled back waivers that relaxed work requirements during the recession and allowed people to collect benefits for longer periods of time. There have also been reports that undocumented immigrants with children who are American citizens have stopped applying for federal assistance for fear of Trump’s immigration policies.
Business investment plunged to a low in the fourth quarter of 2015, but it rebounded to 2010 levels by the time Trump took office. It has continued to climb — gaining 2.6 percentage points, but that tracks with the upward momentum that started at the end of Obama’s term. In 2017, however, the pickup was entirely in the oil and gas sector and related to rising oil prices — just as the slow investment growth in 2015 and 2016 was just in oil/gas and related to low oil prices. In 2018, the pickup has been more widespread. As with stock prices, business investment has spiked around the world.
The Pinocchio Test
Many of the eight factors we examined tell a common story — the start of Trump’s economy follows the trend set by the last years of Obama’s economy. We’ll keep an eye out as the president’s policy changes — from tariffs to taxes — settle into the U.S. and global markets, but as of now, Trump is still working off the base Obama built.
We’ve said before that anyone who gives sole credit to a president for economic gains receives an automatic Two Pinocchios — and Trump’s claim of a historic turnaround is worthy of more. The historical books are going to view the actions taken in 2008 and 2009 by George W. Bush and Obama — and the Federal Reserve — as pivotal to saving the U.S. economy.
Trump, however, has exceeded expectations on jobs and economic growth that were in place at the start of 2017. That’s due in part because of his tax cut, but also because of factors largely beyond his control, such as the increase in oil prices. The real test will be whether the current trajectory is sustainable.
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