In the three months before President Obama came to office — the last quarter of 2008 — the nation’s economy was contracting at a rate of 8.2 percent, the biggest quarterly decline in real gross domestic product since 1958. The month before Obama took office, payroll employment fell by 695,000. The unemployment rate was 7.3 percent and rising fast.
The technical term for such statistics is “nightmarish.”
Now let’s look at the economy President-elect Donald Trump is inheriting. Since we’re still in the last quarter of this year, we don’t yet know its GDP growth rate, but the Federal Reserve Bank of Atlanta’s tracker predicts it will come in at 2.9 percent (last quarter’s growth rate was a robust 3.2 percent). According to this morning’s jobs report, employment growth was 178,000 and the unemployment rate was 4.6 percent, a nine-year low, and close enough to the Fed’s estimate of full employment that they’re likely to raise interest rates at their next meeting to keep the job market from getting too tight. (I think they’d be wrong to do so, but that’s a different discussion.)
When Barack Obama started running for the presidency in 2008, real middle-class incomes were in the process of falling 3.6 percent, the worst year on record since the Census Bureau began tracking median household income in 1967.
When candidate Trump began his successful run in 2015, real middle-class incomes had their best year on record, up 5.2 percent.
The Standard & Poor’s 500 stock-index fell 27 percent in the quarter before Obama took office. Over the past six months, the market is up 5 percent. And housing prices … well, the picture below — an index of national home prices — says it all. Obama caught the worst of the downdraft in the price of most people’s most-valued asset. Trump arrives when the trend is fully recovered.
In other words, the economy that Trump is inheriting is as different as the one Obama walked into as day is to night.
I was a member of the president’s economic team back then, and let me tell you, when you’re losing over 2 million jobs in the first quarter of your presidency, as was the case in 2009Q1, it focuses the operation. Less than four weeks into our first term, the Obama administration passed the largest stimulus since the New Deal.
I’m not here to argue the merits of that policy (though I’ve done so in the past). I raise it to contrast the challenges facing a new president in a vicious downturn vs. an upturn. True, Trump often painted the current economy as a disaster during his campaign, but while the expansion that began in the second half of 2009 is fairly labeled “moderate” in terms of its growth pace, the facts are as I’ve listed them above. Trump is boarding the trend on the upswing, especially as it pertains to jobs, wages and incomes, whereas Obama “caught the falling knife,” as the old saying goes.
Trust me when I tell you that catching a knife is a great way to cut yourself. We can certainly be faulted for our messaging, but there’s not a whole lot you can say to assuage the public when you’re losing 700,000 jobs a month, the jobless rate is headed for 10 percent, as is the budget deficit (as a share of GDP), and foreclosures are hitting record highs. I was one of the lucky ones tapped to try to explain our work to the public, and I can assure you that the message that things would be even worse without our interventions was … um … not all that convincing to people.
The point is that presidents are erroneously blamed or credited for the economies they inherit. In the case of soon-to-be-President Trump, this provides lots of opportunities for phony claims about how great his administration is for the economy, opportunities I’m confident team Trump will exploit (and to be fair, who wouldn’t?).
The reality is that outside of recessions, when countercyclical policy is crucial and can pretty quickly show up in the data, presidents typically have less impact on the economy than they or we commonly think, especially when they first take over. Even for an activist president, as Trump may well be, there’s a significant time lag between their actions and any economic repercussions.
For example, one preliminary analysis of Trump’s tax, spending, trade and immigration plans by researchers at Goldman Sachs predicts that they will initially raise GDP growth by 0.1 percentage point in the second half of next year and then lower growth by about that same amount in 2018 and beyond (because of trade and immigration restrictions). Such tiny wiggles, by the way, will be impossible to pull out of the data and cleanly attribute to presidential policy.
To be clear, such forecasts reasonably assume that a President Trump is unable to deport millions of workers or impose 45 percent tariffs. I’m not suggesting a reckless, inexperienced, thin-skinned president with a compliant Congress couldn’t break the economy. But historical precedent — with perhaps a liberal [sic] sprinkle of wishful thinking — says he’s unlikely to be able to do so.
So if — more precisely, “when” — team Trump starts claiming credit for strong monthly jobs numbers, low unemployment and long-awaited wage gains, I guarantee you it’s not because of anything they’ve done. It’s because they came on the scene at the right time, a luxury their predecessor didn’t have.
They say if you can’t be good, be lucky, and man, this Trump guy has had all kinds of luck so far.