The good news for President Trump is we don’t seem to be headed for a recession anytime soon. But the economy is slowing to the point it resembles something Trump considers nearly as bad: the Obama economy.
GDP growth has dropped from 2.9% in 2018 to 2.1% for the second quarter of 2019. That’s comparable to the 2.2% GDP growth Obama averaged during the four years of his second term. GDP growth was 2.4% in 2017, Trump’s first year in office, and it hit 2.9% in 2018 in part because the Trump tax cuts stimulated business spending. That boost is fading, if not completely gone.
Job growth so far this year is averaging 165,000 new jobs per month, down from 223,000 in 2018 and 179,000 in 2017. This year’s average is actually considerably below the average for Obama’s second term, which was 216,000 new jobs per month.
Other indicators show the economy in retreat. Measures of both the manufacturing and the service sectors have drifted back to levels of 2016 (Obama’s last full year in office). The average workweek has been declining all year and is back to 2017 levels. Falling bond yields may be a recession indicator. Two-thirds of CFOs in a Duke University survey think there will be a recession by the end of next year. And the Morgan Stanley business-conditions index plunged in August to the lowest levels since the recession year of 2008.
Trump should be huddling with White House economists to figure out what he can do to keep a 10-year recovery going. Instead, he’s escalating this trade war with China, which could itself trigger a recession, and bashing the Federal Reserve for failing to perform economic miracles. For these reasons, this week’s Trump-o-meter reads FAILING, the second-lowest rating.
Trump now says he doesn’t care if trade talks with China break down, which suggests the trade war is going to get worse and stay that way. Trump has promised to impose new 10% tariffs on imported Chinese consumer products starting Sept. 1, which will directly raise the cost of thousands of everyday items American purchase. A 10% tariff won’t be ruinous, but it will be the first time consumers directly feel the pain of Trump’s trade war. That would raise the total cost of Trump’s tariffs to about $100 billion per year, according to Moody’s Analytics.
Consumer spending has been a bright spot in the economy, with most Americans generally unfazed by the trade war up till now. That’s why Trump is playing with fire by putting tariffs on consumer goods. CEOs are already skittish about Trump’s reckless trade policies, which has depressed business spending. If consumer spending falls as well, that could be the straw that breaks the economy’s back.
Trump may think he can back off his tariff threats if required by an economic emergency. He may also think the Fed will cut interest rates more aggressively due to his trade provocations, which in turn will set everything right. If so, Trump may be badly overestimating his ability to put the genie back in the bottle once past economic activity is lost forever and the economy turns.
We’re not at the precipice yet. But Trump is leading us there. And the Obama economy will look pretty good compared with where we may end up.