The White House has issued a steady stream of commentary about how the U.S. economy is the best ever (not true) and how we have finally turned the corner from the slow growth of the Obama years (also not true). Sound analysis is often drowned out by political noise and ideological bias.
The best way through the noise and bias is to look at hard data. The economy has been growing since June 2009, making this the third-longest economic expansion on record. However, it has also been the weakest economic expansion on record. That has not changed under President Trump.
Average annual real GDP growth in this nine-year expansion is 2.14%. GDP growth in 2017, the first year of the Trump administration, was 2.3%, slightly above the expansion average. This article reports that GDP growth in the first quarter of 2018 was revised down to 2.0%, slightly below the expansion average.
In short, growth under Trump has been almost exactly what it was under Obama. It’s true that the second quarter of 2018 looks stronger, about 4%, but we’ve seen that movie before. Even during Obama’s weak expansion we saw strong quarters including the first quarter of 2015, which was 3.2%, and the second quarter of 2015, which was almost 3%.
The problem is that these strong quarters soon faded; growth in the fourth quarter of 2015 was only 0.5%, almost recession level. It looks as if the strong second quarter in 2018 may be the result of temporary factors arising from the Trump tax cuts. Those factors will soon fade and return growth to the same punk levels we’ve seen for nine years.
Investors should look past the political rhetoric and happy talk. With weak growth continuing and more Fed tightening in the cards, a recession is far more likely than a return to long-term trend growth. The stock market seems to agree since it peaked last Jan. 26 and has gone nowhere since then.
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