The U.S. Bureau of Economic Analysis released its first estimate for the December quarter and it shows the economy growing at 2.1%. For 2019 GDP growth was 2.3%, which is down from 2.9% in 2018 and just below 2.4% in 2017, Trump’s first year in office.
Over the 12 quarters Trump has been President only four of them have had GDP growth over 3% and six of the quarter’s growth was 2.3% or lower. And for the past three quarters GDP growth has been 2.0%, 2.1% and 2.1%, respectively. This is a far cry from Trump’s claim that the economy could growth 4%, 5% or maybe even 6% when he was President.
Under Trump business investment has turned negative the past three quarters and is negative or essentially flat when the impact of inventory changes are taken into account. Pretty much the only segment of business investment that has been positive the past three quarters is Intellectual Property Products.
Even consumer spending slowed substantially in the December quarter. It went from a 4.6% growth rate in the June quarter to 3.2% in September to 1.8% in the last three months.
Trump’s second half GDP growth was weaker than reported
There are two major segments (inventories and trade) that can swing widely in any quarter, which can either add or subtract substantially from the GDP calculation. A third, government’s contribution, doesn’t tend to have the same multiplier effect on the economy as consumer or business spending as military goods don’t increase productivity.
One metric to look at is the contribution from Personal Consumption Expenditures (or consumer spending) plus Gross Private Domestic Investment (or business investment) minus the Change in Private Inventories (since they can swing back and forth quarter to quarter), as I believe it gives a better indication of the underlying economy.
By making these changes it increases the growth rate in the June quarter, slightly hurts it for the September quarter and substantially decreases it for the December quarter.
- June 2019 quarter: Increases from 2% growth to 2.8% growth
- September 2019 quarter: Decreases from 2.1% growth to 2.0% growth
- December 2019 quarter: Decreases from 2.1% growth to 1.2% growth
The trend of 2.8% growth in the June quarter to 1.2% in the December quarter is not positive.
Obama’s last three years had better growth than Trump’s three years
A better metric to use than the GDP growth rate that is reported each quarter is the change year over year. The main reason is that quarterly results take the quarter-to-quarter change and multiples it by four. This means that any component having a stronger or weaker result in a quarter can create a yearly number that is not a good indicator of the real economy.
When Obama took office he inherited an economy that was in the teeth of the Great Recession. In 2009 personal consumption dropped 2.5% year over year and business investment fell off a cliff, down 21.2%. Both segments recovered and started the current 10-year plus economic expansion.
Using the same GDP metric of consumer spending plus business investment adjusted for inventory changes, Obama’s last three years in office had growth rates of at least 2.17% and as high as 3.06%.
For Trump the high point was 2.83% in 2018 when the tax cut seems to have had the largest impact and even fell short of Obama’s 2014 and 2015 growth rates of 3.06% and 3.05%, respectively.
In 2019 the adjusted growth rate was only 1.99%. This is less than Obama’s three last years in office and less than five of his last six years.
I use the timeframe of Obama’s last three years to compare to Trump’s three years since they had similar economic environments and are not distorted by the Great Recession.
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