Donald Trump’s economic inheritance in 7 charts

The only president to take office during a stronger economy is George HW Bush

by: Lauren Leatherby in New York

Donald Trump will enter the White House presiding over one of the stronger US economies any president has inherited in recent history.

On Thursday, the Department of Commerce reported that the US economy grew at a far faster pace in the third quarter of 2016 than previously thought — an annualised rate of 3.5 per cent. Since the 1980s, the only president to have taken office while the economy was growing at a faster rate was George HW Bush.
The latest data stand in sharp contrast to the free-falling economy Barack Obama inherited in 2009, when the US was losing almost 800,000 jobs a month. On the campaign trail, Mr Trump repeatedly characterised the economy under Mr Obama as a disaster, but the economy has come a long way since then.
An analysis of economic metrics paints a picture of an economy finding solid footing after the financial crisis. Unemployment stands at a nine-year low, the S&P 500 continues to break records, and home sales hit their highest rate since 2007.
Here are seven charts showing how the trends Mr Trump will inherit compare to the state of the US economy at other recent presidential inaugurations:

In recent history, only Jimmy Carter and George HW Bush have entered the White House with higher GDP growth rates, and Thursday’s commerce department report shows that the US economy is picking up even more steam.

After its recovery from the 2008 financial crisis, the stock market regularly set record highs beginning around 2013. Stocks surged even higher after Mr Trump’s election, as investors bet that he would follow through on his campaign promises to cut taxes and regulations for businesses. But some of his other proposals could have downsides for big businesses, such as his suggestion of imposing tariffs on Chinese and Mexican imports.

The US unemployment rate has fallen to 4.6 per cent. Only one recent president — George W Bush — has taken the oath of office when the US had a lower jobless rate.

Unemployment peaked at 10 per cent in October 2009, just after Mr Obama entered the White House. Ronald Reagan is the only other recent president to have overseen a similarly sized drop in unemployment: the rate shrank from 10.8 per cent in 1982 to 5.3 per cent in 1988.

Mr Obama’s opponents are quick to point out that, despite the low unemployment rate, the labour force participation rate is lower than it was during its late-1990s peak. Many workers were squeezed out of the job market during the financial crisis, but today it is difficult to tell how many of those workers would like to re-enter the workforce versus how many are retired Baby Boomers or have left the workforce for other reasons, for instance to be a stay-at-home parent.

The US Federal Reserve sees 2 per cent inflation as a sweet spot for maximum employment and price stability. As inflation approaches that target, the Fed said in December it would raise rates for the first time in a decade. It forecast three more rate rises next year in response to what policymakers saw as an economy that is heating up.
But the road ahead for Mr Trump is not without its bumps. Inequality is higher than it has been in decades, and the federal deficit is larger than ever.

US inequality has surged to its highest point since the 1920s, before the Great Depression. The nation’s top earners take home a higher and higher share of US income, while the average income for the bottom half of US workers has not increased since the 1970s.

Increasing inequality harms outcomes for the US economy as a whole: studies show that increased inequality leads to greater political polarisation, decreased economic mobility, a shrinking middle class, poorer education outcomes and more.

Worsening inequality would already be difficult to reverse. But under Mr Trump’s proposed policies, inequality might get worse before it improves, especially if the boom in capital markets continues and if Mr Trump’s proposed tax breaks disproportionately benefit the country’s richest as much as analysts predict.

Mr Trump’s promises to impose tariffs on cheap Chinese imports could also drive up prices for low-income Americans, especially if such policies fail to bring back the volume of jobs he promises.

The nation’s deficit is also the highest it has ever been, at over $19tn. In contrast to conservatives’ traditional pledge to reduce government spending, Mr Trump’s transition team has pledged to spend $550bn on infrastructure and significantly boost defence spending. This additional government spending, coupled with government revenue loss from his plans to cut taxes, would lead to a $7.2tn rise in the federal debt over the next decade, according to the Tax Policy Center.

Inequality and the federal deficit are not the only large economic challenges that may come to haunt Mr Trump during his presidency. Growth has stagnated in both the developed world and in emerging markets. Manufacturing employment, of course, remains much lower today than it was four decades ago.

Also, the US dollar hit its highest level in 14 years in December. A strong dollar hurts US exports while making it cheaper to import goods. That would widen the trade deficit and make it much more difficult for Mr Trump to fulfil his campaign promises to slash the trade déficit.

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