The last set of growth figures for Barack Obama’s eight years in the White House could hardly have been better. For the new president, that is.
Judging by the preliminary estimates, the pace of US growth slowed in the final three months of 2016 – and by more than Wall Street had been anticipating. Activity expanded at an annualised rate of 1.9% in the fourth quarter, down from 3.5% in the previous three months.
Donald Trump, therefore, has a much easier inheritance than Obama, who came into office with the US suffering its biggest slump since the Great Depression. Obama’s first job in 2009 was to stop the bleeding: halt the rise in unemployment and stop businesses going bust.
This was achieved through highly aggressive monetary policy from the Federal Reserve and a short-lived burst of fiscal activism. It was enough to get the economy moving again, but not deliver the sort of turbocharged perfomance that had followed previous post-second world war recessions.
The economy is growing, but not particularly strongly for a country with a history of bouncing back rapidly from setbacks.
In 2016 as a whole, gross domestic product increased by 1.6%, compared with 2.6% the previous year. This fits with Trump’s core message that something has gone fundamentally wrong with the world’s biggest economy.
There are, however, two other reasons why Trump should thank his lucky stars. The first is that the breakdown of the growth figure into its component parts shows the main reason for the slowdown in the fourth quarter was that exports fell and imports rose. America’s poor trade performance subtracted 1.7 percentage points from growth in the final three months of 2016.
This is not particularly surprising, given that the US dollar has been rising on foreign exchanges, which makes imports cheaper and exports less competitive. It also goes against the trend for the first three quarters of 2016, when exports helped increase growth. But, again, the latest data fits with Trump’s narrative that more needs to be done to repatriate production and limit imports.
The second reason Trump should count his blessings is that he will get the credit when the economy starts to grow more quickly this year, as it would even without the tax cuts and infrastructure spending he plans. Obama, despite what the new president has claimed, did not leave the economy in terrible shape. Growth picked up quite appreciably in the second half of 2016 and the economy is doing well enough for the Fed to consider raising interest rates again in March.
There are potential problems for Trump. One is the impact of a strong dollar, not just on trade, but on vulnerable emerging market countries that have their debts denominated in the US currency. The other is that while his proposed tariffs and import taxes would help US producers, they would raise prices for US consumers, leading to reduced spending and slower growth, rather than faster.
