How Good Is the Trump Economy, Really?
It depends on whether you look at the level, the direction or the rate of change — three concepts that are often conflated.
By Neil Irwin
June 9, 2018
The Trump administration has become downright boastful about the state of the economy.
“In many ways this is the greatest economy in the HISTORY of America,” the president tweeted recently. After I analyzed the May employment data by consulting a thesaurus and writing a cheeky article using a lot of near-synonyms for “good,” the Trump administration blasted it out approvingly to the White House press list and through a presidential tweet.
But I also received some blowback from liberals. There were some similarly good months for job growth in the Obama administration, they noted. And my analysis was not nearly so effusive then.
So which is it? Is the economy doing exceptionally well, or performing only about as well as it did in the late years of the Obama administration?
The answer depends on precisely how you phrase the question, which in turn hinges on a crucial distinction that people often fail to make when talking about the economy. There’s a big difference between the level of economic performance; the direction of change in the economy; and the pace of change.
Think of the economy as a bathtub. The level of the water in the tub — how much economic activity there is — is one useful, interesting question. Whether the water level is rising or falling — is this an economic expansion or recession? — is a separate question. And how fast the water level is changing — what is the pace of growth? — is a third question.
All might be useful information, but they capture different things. And too much of the debate over how the economy is doing conflates them.
So how good is the Trump economy? It depends on which of these approaches you take.
The economy looks strongest if you look only at the level of economic activity, not the rate of change. For example, per-person gross domestic product adjusted for inflation is at its highest level on record, as are other similar measures of output.
That isn’t very surprising. Over time, workers tend to become more productive thanks to improving technology and the nation’s stock of machinery and other capital increases. So we expect G.D.P. to rise most of the time, and to fall only during the occasional recession. By this measure, 60 percent of the time since modern G.D.P. statistics began in 1947, a president could accurately claim that the economy is the best it has ever been.
Other measures of the level of economic performance are also quite good, though not historically so. The 3.8 percent unemployment level is the lowest in 18 years, but it was lower in 1969. The lowest on record was 2.5 percent in 1953.
And the very low jobless rate masks some weakness in the labor market. Among adults in their prime working years, 79.2 percent were working in May, which is still below that statistic’s 80.3 percent recent high in early 2007 and its record high of 81.9 percent in 2000.
Still, if you look only at the level at which the economy is performing, the Trump administration does have plenty to be excited about.
Similarly, the direction of the economy looks to be positive by almost every measure. Employers are adding jobs; output is rising, as are incomes. Another term for a shrinking economy would be an economy in recession, and there is no reason to believe that a recession is currently underway.
Then there’s the growth rate. This is the measure by which the Trump economy looks very much like a simple, straightforward continuation of President Obama’s second term.
In 2016, for example, Mr. Obama’s last year in office, employers added an average of 195,000 jobs a month. In the first 17 months of the Trump administration, the average has been 190,000.
It shows up in G.D.P. numbers, too. What may look like a nice smooth line of steady improvement in per-capita G.D.P. growth in the chart above looks a lot more herky-jerky when you look at the same data in terms of percent change over the previous year.
And looking at the growth rate instead of the level shows that the 2.09 percent improvement in the first year of the Trump administration is below a couple of the peaks of the Obama second term, including a 3 percent reading in the year ending in the first quarter of 2015.
In talking about the economy, the level, direction and rate of change all matter. They just matter in different ways.
The late 1990s, for example, featured both strong levels of economic activity and fast growth. In the aftermath of a steep recession in 1982, there was a different combination: a weak level of economic activity paired with fast growth. The 2010-2011 time frame featured weak economic activity paired with slow growth, a nasty combination.
The reason my analysis was more effusive about the recent economic results than it was about similar growth numbers during the Obama administration is that strong growth numbers are more impressive — and unexpected — at a time when the level of economic activity is already high. When the jobless rate was, say, 7 percent, we needed strong job growth just to put the unemployed back to work. To get similar job growth rates with an unemployment rate below 4 percent is reason for a little more giddiness.
So what is the most honest way of talking about the Trump economy? It goes like this: The president inherited an economy that had come a long way toward healing. During his administration, the economy has continued growing at about the same rate it did before he took office, pushing incomes, employment and output to yet higher levels.
There are plenty of problems that remain in the United States, economic and otherwise, and the degree of credit the president deserves for the state of the economy is an open debate. But this is a bathtub that is already pretty full, and the water’s rising nicely.
Help
