Then there’s the stuff that’s more incoherent than fact abuse, such as his recent statement that “we have a very false economy.” I think what he’s saying here is that the real economy — gross domestic product, incomes, jobs — is pumped up by accommodative monetary policy, and that if the Fed pulled out the rug, i.e., raised rates, which he apparently wants it to do, these variables would tank. Why tank the economy, you might ask? Beats me; that goal makes about as much sense as Trump’s repeated flip-flopping on this rate-hike issue, which he was on the other side of in May after originally embracing his current position in November.
But is there a germ of truth somewhere in Trump’s “false economy” narrative? Broadly speaking, the current U.S. economy is neither great nor terrible, and it’s certainly not false, whatever that means. As I’ll show in a moment, many key indicators that mean a lot to people are looking good. At the same time, even seven years into an economic expansion, we’re still not at full employment (although we’re getting there), productivity growth is way too slow, and although workers’ real wages are finally starting to grow, elevated inequality means that the benefits of growth are still too narrowly shared.
One way to avoid Trump’s mind-fogging vagaries is to ask Ronald Reagan’s 1980 question: Are you better off than you were four years ago? Especially over a period of expansion, this is a reasonable way to evaluate medium-term trends.
The table below shows nine variables — top-line numbers that come to mind when you ask that four-year question. On the positive side of the ledger:
- A gallon of gas costs more than 40 percent less.
- We’re adding almost 100,000 more jobs per month now than we were four years ago.
- The unemployment rate is down three percentage points.
- The underemployment rate, a broader measure of slack, is down five points.
- Real wages of blue-collar workers in factories and non-managers in services are up almost 2 percent in real terms over the past year, after being flat in 2012.
- Real middle-class income is up 7 percent since 2012, according to Sentier Research’s estimates of monthly real median household income.
- The stock market’s up by half.
Productivity growth, on the other hand, is a serious problem. I’d discount the decline over the past year — I don’t think we’ve forgotten how to produce stuff — but the underlying trend growth rate is a very low 0.5 percent, which is feeding into slower GDP growth.
There are other indicators worth mentioning. Labor force participation remains too low, especially for working-age people, although it has climbed two percentage points over the past year. Consumer inflation, which is embedded in the income and wage results, has been historically slow, up less than 1 percent over the past year, compared to 1.4 percent four years ago.
To be clear, the four-year question lacks important context. Although Sentier’s median household income estimate is up significantly over the past few years, for example, it’s only now back to its pre-recession level. Given long-term wage stagnation, recent wage gains are particularly out of context: the real hourly pay of these non-manager/blue-collar workers today is about the same level it was in the late 1970s. On the other hand, the recent GDP numbers have been depressed by an inventory drawdown that is likely to reverse soon: Third-quarter estimates are tracking at north of 3 percent, and consumer spending, driven by job growth, low inflation and wage gains, is a percentage point higher than it was four years ago. The Case-Shiller home price index is one-third higher than it was four years ago.
Moreover, a few numbers can’t possibly sum up everything people care about economy-wise. In a complex system like ours with 125 million households in different places facing different challenges, blanket assessments are relatively meaningless. When someone asks me “How’s the economy doing?” my stock reply is: “Whose economy are you talking about?”
But all told, the numbers reveal an economy that’s much better than the one Trump’s trying to sell. Although the productivity trend is worrisome and too many people are undeniably left behind in the United States today, we’re moving in the right direction.
In other words, there is no “false economy.” I guess if your mantra is “Make America Great Again,” you’ve got to gin up the idea that things are worse than they actually are.
Data note and sources: Gas (monthly average): U.S. Energy Information Administration; Job growth, unemployment and underemployment, production/non-supervisory wage, inflation, productivity growth: BLS; Real monthly median household income, Sentier Research; Real GDP growth: BEA; S&P 500 (monthly average): Dow Jones Indices. Payroll growth is average of last three months compared to same average in 2012. Productivity and real GDP growth rates are year over year.