New Data Highlights That Trump’s “Greatest Economy Ever” Wasn’t Actually So Great In 2018
The performance of the economy in 2018 has been a critical benchmark for Trump’s repeated claims that he has brought the American economic engine to its highest levels in decades. Both of Trump’s signature policies on the economy, the tax cut and the protectionist trade policy, were implemented at the start of the year (the tax cut in January and the trade policy in March), so how the economy did in that period is crucial to the President’s economic legacy heading into the 2020 elections.
And at first, the data did appear to show the economy performing quite well in 2018. Unrevised data from the Census Bureau showed 3% GDP growth from Q4 2017 to Q4 2018, hitting the Administration’s target and quite a bit higher than the 2.5% growth from Q4 2016 to Q4 2017. Similarly, unrevised data from the Bureau of Labor Statistics showed a significant increase in employment, with monthly job growth averaging 223,000 per month in 2018 compared to 179,000 per month in 2017. And while the economy under Obama hit a 3%+ year-over-year growth rate in 4 different quarters and jobs growth in 2014–16 averaged 224,000 jobs, the numbers under Trump were still a real achievement. Finally, business investment (excluding energy) also seemed to pick up its rate of expansion, with annualized growth of 4.8% in 2017–19 compared to 4.5% in 2013–16. All in all, it had seemed like three major indicators of economic health had improved to some extent in 2018 under the Trump administration.
But then came the revisions. Over the past month, the Census Bureau and BLS have completed their annual revisions to the previous year’s data, and the result has been an across-the-board cut to the performance of the economy according to each of these metrics. First, the Census Bureau revised GDP growth in 2018 down significantly to 2.5%, meaning that not only did 2018 growth come in way below Trump’s 3% target but it also actually declined compared to 2017 (which was revised up slightly to 2.8%). Second, the BLS reported that actual job growth from March 2018 to March 2019 was a whopping 501,000 jobs weaker than previously reported. As a result, rather than creating an average of 223,000 per month in 2018, the economy actually saw job growth of just 185,000 per month, barely above the 2017 average of 179,000 per month. Finally, annualized business investment (excluding energy) in 2017–19 was revised down a very large 0.6 percentage points (from 4.8% to 4.2%), meaning that business investment was actually slower in 2017–19 than in 2013–16 when it averaged an annualized 4.6% (slightly revised up from 4.5%).
Taken together, this updated data paints a devastating picture of the failed promises of the Trump economy. The tax cut and protectionist trade policy, through reduced taxes on corporations and tariff-based incentives to produce in the US respectively, were supposed to create a surge in business investment which would then ignite both economic and jobs growth. Instead, there is little evidence that business investment outside of the energy sector picked up at all in 2018, and both economic growth and jobs growth either declined or remained constant from 2017 to 2018.
What has changed though? The escalating costs of these Trump policies. The CBO now estimates that the deficit will hit $960 billion in 2019, an astounding 64% increase over the $585 billion deficit in 2016 that Trump inherited. Furthermore, the CBO projects that the deficit will grow to an average of $1.2 trillion over the next decade.
As the 2020 election grows near, Trump has continuously touted the “greatest economy ever” as the result of his tax cut and trade policies. However, what we know now is that the trend of economic, jobs, and investment growth was really no stronger in 2018 than in 2017, before these policies were enacted. Instead, those very policies have created serious risks to future growth, including a rapidly slowing manufacturing sector, decelerating global growth, and an unprecedented fiscal deficit.