— President Trump, in remarks as an Army tank plant in Lima, Ohio, March 20, 2019
“We’re doing a good job. We finished up at 3.1 GDP. Everybody — you know, that hasn’t been done in 14 years, maybe more than that, but 14 years.”
— Trump, in an interview on Fox Business News, March 22
“3.1 GDP FOR THE YEAR, BEST NUMBER IN 14 YEARS!”
— Trump, in a tweet, March 22
The president has a shiny new talking point — that the gross domestic product grew 3.1 percent in 2018, after adjusting for inflation. That’s a defensible number, because there are two ways a GDP figure for the year can be calculated. But it starts to get misleading the way he frames it — that it’s the best result in 14 years and that the news media wrongly reported it as 2.9 percent.
Here is what Trump’s Commerce Department (U.S. Bureau of Economic Analysis) reported Feb. 28: “Real GDP increased 2.9 percent in 2018 (from the 2017 annual level to the 2018 annual level), compared with an increase of 2.2 percent in 2017.” So the news media was reporting on an actual news release by the U.S. government, not by counting “odd months.”
(This is an initial estimate, and the number may change as more data is analyzed. The next revision is due March 28. Update: the revisions in March and July moved the numbers lower so we will note the change throughout.)
This is a traditionally reported number for annual GDP growth rate. It compares how many goods and services the United States produced in 2018 ($18.6 trillion) with the number for the previous year ($18.1 trillion).
The problem for Trump is that he had hoped to beat 3 percent growth. So 2.9 percent would be a bit of a bummer, especially because President Barack Obama achieved that result in 2015. (Let’s not forget that during the 2016 presidential campaign, Trump promised “to grow the economy 4% per year” in his Contract with the American Voter.) [Update: With the March 28 revision, Trump slipped just behind Obama’s best year, with a rate of 2.85 percent compared to Obama’s 2.88 percent. The official rate goes to one decimal, so effectively they remain tied. The July 26 revision confirmed 2.9 percent growth in 2018.]
But the White House Council of Economic Advisers came to the rescue by offering a calculation that compared the fourth quarter of 2018 with the fourth quarter of 2017. This calculation, known as 4Q/4Q, comes to 3.1 percent, allowing Trump to claim victory. (Update: the March 28 revision brought the 4Q/4Q figure to 3.0, or more precisely 2.97. New Update: The July 26 revision brought the number down to 2.5 percent.)
In key ways, 4Q/4Q makes more sense as a measure of annual growth than the traditional calculation. “The annual-average-to-annual-average growth rates reflect what happened in the preceding year as well as what happened during the year in question,” the CEA said in a technical note explaining its preference for 4Q/4Q. “In contrast, the fourth-quarter-to-fourth-quarter growth rates reflect only what happened during the specified year.”
The CEA helpfully provided language for reporters to avoid confusion and ambiguity:
- “Real GDP grew at a 3.1 percent over the four quarters of 2018.” (4Q/4Q)
- “On a year-over-year basis, real GDP grew 2.9 percent.” (Commerce Department)
We checked, and Trump’s CEA used 4Q/4Q in 2018, so this was not a sudden switch designed to make the boss look good. Jason Furman, who led the CEA under Obama, has also advocated that 4Q/4Q is a better measure for growth in a particular calendar year.
“I think most economists prefer four-quarter changes to annual averages,” Furman said. “As I’ve written before, the problem with annual average is that the annual average for 2018 reflects data on quarterly growth in 2017 and 2018. So it doesn’t tell you what is actually happening in a given year or, say, as a result of the tax cuts.”
He noted, for instance, that annual average growth was reasonably high in 2008 (even though the economy imploded) because it included data from 2007, when the economy was good, and annual growth was reasonably low in 2009 (despite the economy starting to recover that year). The Commerce Department’s method of calculating GDP shows the GDP sagging just -0.1 percent in 2008 and -2.5 percent in 2009, compared with -2.8 percent in 2008 and +0.2 percent in 2009 under the 4Q/4Q method.
But while 4Q/4Q corresponds to an annual calendar, it does not tell you when a president had his peak growth rate — or his nadir. Trump faulted Obama for being the first president to never break 3 percent on an annual basis — that’s under the year-over-year measure used by the Commerce Department — but under that method he simply has tied Obama. Trump also has not exceeded 3 percent.
Now that Trump is citing 4Q/4Q, that means the relevant comparison would not just be 4Q/4Q but other quarter-over-quarter calculations. The economy under Obama hit its peak in 1Q/1Q 2015, when it grew 3.8 percent. Obama exceeded 3.1 percent on two other occasions, as well. (His best result for 4Q/4Q was 2.7 percent, in 2014.) Obama’s nadir was reached in 2Q/2Q 2009, when the growth rate was -3.9 percent.
Yet Trump is telling audiences “this hasn’t been done in 14 years, maybe more than that, but 14 years.” That’s because he’s going all the way back to Q4/Q4 2005, when that particular quarter-to-quarter measure reached 3.1 percent. The chart below shows how stronger periods of sustained growth for a period of a year were reached in 2015 and 2010.
The Pinocchio Test
Trump is being misleading on several levels here. He accuses the news media of trying to manipulate the data, when all reporters did was report a widely used number issued by the Commerce Department. That’s simply false. He then claims he hit a number that had not been reached for 14 years, when, in fact, economic growth in the past decade three times exceeded 3.1 percent using quarter-over-quarter metrics. Trump is simply fixated with the data that corresponds to the annual calendar. But it’s really the best economic year-over-year growth in four years, not 14. (Update: the March 28 revision to 3.0 means Trump tied himself -- it is the same result as 3Q/3Q 2018. New Update: The July 26 revision means that this is actually one of Trump’s most mediocre periods.)
Trump’s CEA offers a compelling case that 4Q/4Q is a better gauge for measuring GDP growth within a calendar year, and it acknowledges that the 2.9 percent growth rate is the measure for year-over-year growth. But such nuances appear to have been missed by the president. If he just stuck to the numbers, without the braggadocio and press bashing, he’d be on more solid ground. The economy is doing well enough that there’s little need to spin the data further.
We’re offering a blended rating here. It was accurate at the time -- though no longer! -- to cite 3.1 percent growth for 4Q/4Q, but the accusation against the news media is worthy of four Pinocchios and the claim of best record in 14 years is worth two.
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