Trump ready to claim Obama record on economy

If paychecks swell in 2017, Donald Trump will claim the credit, despite the fact that wage growth first began picking up in 2015 (see chart). During the campaign, Mr Trump cast doubt on official labour-market statistics, saying that they painted a rosy picture of the economy. Next year he will probably champion them.

us_averagehourlyearnings2016

With the average pay-cheque now growing faster than at any time since 2009—when layoffs of low-paid workers were artificially boosting average wages—that argument is getting harder to make. In fact, 2.9% wage growth may be close to the limit of what the economy can produce without sparking inflation. Prime-age labour-market participation surged in the past year or so, and has now recovered about a third of its fall after the recession. Some of the remaining shortfall is almost certainly structural, rather than something stimulus, such as lower interest rates, can fix. After all, the participation of prime-age men has been falling since the 1960s, suggesting supply-side factors, such as the declining value of the skills of uneducated workers, are at work. And as the returns to schooling rise, you would naturally expect more people to choose to study rather than work.

Demographic forces are a further brake on how fast average wages can rise sustainably. The onset of the recession coincided with the first retirements of the baby-boom generation. As high-earners at the end of their careers have left the workforce, they have been replaced by low-earning younger folk. According to researchers at the San Francisco Fed, that has helped keep average pay rates down. That, too, suggests a lower speed-limit for wage growth than before the financial crisis, and hence that December’s wage growth indicates a labour market at close to full health.

Trump likes to congratulate himself. The strong economic guidance during the Obama presidency will allow Trump to claim credit for making America great again.

Read the complete article on The Economist magazine web site.

Barack Obama’s economic record: End-of-term report

Excerpts from The Economist magazine.

NOT since 1933 had an American president taken the oath of office in an economic climate as grim as it was when Barack Obama put his left hand on the Bible in January 2009. The banking system was near collapse, two big car manufacturers were sliding towards bankruptcy; and employment, the housing market and output were spiralling down.

Hemmed in by political constraints, presidents typically have only the slightest influence over the American economy. Mr Obama, like Franklin Roosevelt in 1933 and Ronald Reagan in 1981, would be an exception. Not only would his decisions be crucial to the recovery, but he also had a chance to shape the economy that emerged. As one adviser said, the crisis should not be allowed to go to waste.

Did Mr Obama blow it? Nearly four years later, voters seem to think so: approval of his economic management is near rock-bottom, the single-biggest obstacle to his re-election. This, however, is not a fair judgment on Mr Obama’s record, which must consider not just the results but the decisions he took, the alternatives on offer and the obstacles in his way. Seen in that light, the report card is better. His handling of the crisis and recession were impressive. Unfortunately, his efforts to reshape the economy have often misfired. And America’s public finances are in a dire state.

Seven weeks before Mr Obama defeated John McCain in November 2008, Lehman Brothers collapsed. AIG was bailed out shortly afterwards. The rescues of Bank of America and Citigroup lay ahead. In the final quarter of 2008, GDP shrank at an annualised rate of 9%, the worst in nearly 50 years.

The elephant in the second term

… Mr Obama is likely to move closer to the centre if he wins a second term. His principal legislative goals—health care and financial reform—are achieved. The Republicans are almost certain to control at least one chamber of Congress, precluding big new spending plans, regardless of the state of the recovery.

That leaves the public finances. There is little to commend in Mr Obama on that front. True, he inherited the largest budget deficit in peacetime history, at 10% of GDP. But in 2009 he thought it would fall to 3% by the coming fiscal year. Instead, it will be 6%, if he gets his way. Back in 2009, he thought debt would peak at 70% of GDP in 2011. Now it is projected to reach 79% in 2014 assuming his optimistic growth forecast is correct.

This is not quite the indictment it seems: normal standards of fiscal rectitude have not applied in the past four years. When households, firms and state and local governments are cutting their debts, the federal government would have made the recession worse by doing the same.

Read the complete article on The Economist here.