President Trump held a special press conference to make what are clearly fraudulent claims on US economic growth – claiming 2nd quarter US GDP growth was ‘historic’. These claims were exposed as false even by serious Western media. As it is crucial to have an accurate analysis of the real state of the US economy this is given here.
As always in serious matters there is no virtue in ‘pessimism’, no virtue in ‘optimism’, only a virtue in realism. Application of the method of ‘seek truth from facts’ shows:
First the Trump administration’s claims will be examined, then the demolition of these claims in the serious Western media, and then the detailed factual situation of the US economy will be analysed.
Serious Western analysis of the data
President Trump at his press conference claimed annualised 4.1% growth in the US economy between the 1st and 2nd quarters of 2018 was of ‘historic importance’. Numerous US media immediately pointed this out as false. In fact, US growth in the 2nd quarter of 2018 was lower even than its peak under Obama.
Ian Bremmer, President of the Eurasia Group, the US’s most influential political risk analysis company, put out a Tweet listing the fastest annualised growth rates in any quarter since the 2008 financial crisis – 5.1% in Q2 2014, 4.9% in Q3 2014, 4.7% in Q4 2011, 4.5% in Q4 2009. Therefore, far from being historically high, Trump’s 4.1% was actually lower than four quarters during the Obama administration.
The New York Times noted: ‘the economy exceeded 4 percent annual growth four times during the Obama administration, with the highest level…. occurring in… 2014.’ As Table 1 shows, using the same method of calculation as the claim for a 4.1% US growth rate, maximum growth under Obama was 5.1%. However, this peak under Obama was far lower than under former US Presidents – under George W Bush peak US growth was 7.0% and under Clinton 7.5%. Earlier Presidents achieved even higher growth rates such as 10.3% under Nixon. Therefore, far from being ‘historic’, the growth rate under Trump in the 2nd quarter of 2018 was striking only in that it was lower than under previous US Presidents.
Other claims by Trump at the press conference were equally false. For example: ‘We have added 3.7 million new jobs since the election, a number that is unthinkable.’ The New York Times noted: ‘In fact, the economy added more jobs in a comparable period before his election.
‘In the 19 months from December 2016 to June 2018, the economy added just under 3.7 million jobs. In the 19 months before Mr. Trump’s election, the economy added 4.3 million jobs.’
Other US media seriously analysed the 2nd quarter economic data. The Washington Post featured the following factually accurate analysis:
‘“Over the last 12 months, the economy has grown by 2.8 percent, which is a bit better than it has done recently, but is in no way the strongest growth during this expansion,” said Paul Ashworth, chief U.S. economist at Capital Economics. The U.S. economy grew by 2.9 percent in 2015.’
The Financial Times was scathing, noting that 2.8% 2nd quarter 2018 growth, which as already seen was not particularly high by previous standards, was partially due to one off factors: ‘Among those factors was an increase in exports that many economists believe was caused by foreign buyers of soyabeans and other US exports trying to get ahead of tit-for-tat tariffs imposed by the US and its trading partners…
‘the 9.3 per cent increase in exports in the second quarter had been distorted by an 80 per cent annualised jump in exports of foods, feeds and beverages, driven mainly by a spike in soyabean and corn shipments to avoid tariffs.’
Similarly, the Financial Times noted Trump’s distortion of trade data: ‘One example involved a $50bn reduction in the US trade deficit, which Mr Trump said left him particularly pleased…
‘That fall, however, reversed an increase of more than $50bn seen in the same measure last year… ‘Trade data released separately this month showed that the US’s deficit in goods and services with the world had grown by $17.9bn in the first five months of this year versus the same period of 2017.’
As serious Western media immediately refuted Trump’s inaccurate claims it is disturbing that sections of the media instead reported ‘fake news’ from the Trump press conference as accurate.
The US year on year growth rate is 2.8%
This situation becomes even more serious when a detailed analysis is made of the US figures. To do this it is important to understand that there is a crucial difference between the way China’s and US economic growth is announced:
For this reason, China’s method, calculating the real year on year growth, is more robust than the US method and is therefore used here.
Figure 1 therefore shows real US GDP growth in the 2nd quarter of 2018 compared to a year earlier was 2.8% - as accurately stated by serious US economists such as Ashworth cited above. This chart confirms year on year peak growth under Trump, 2.8%, was lower than 3.8% under Obama, 4.3% under George W Bush, and 5.3% under Clinton.
However, to most accurately evaluate the situation it is necessary to recall that the US economy shows business cycle fluctuations. Therefore, to assess 2nd quarter growth it is necessary to analyse which position in the business cycle the most recent growth occupies and to compare it to average medium/long term US growth. Fortunately, this is rather easy as the US economy has a rather stable medium/long term growth rate. Using a moving average to eliminate purely short-term fluctuations, the three-year moving annual moving average of US GDP growth is 2.1%, the five-year moving average is 2.4%, the 7-year moving average is 2.3%, and the 20-year moving average 2.2%. This consistency, to within 0.3% over the medium and long term, means the US annual growth rate over anything except the very short term is predictable (only a 10-year moving average shows a significantly lower growth rate, at 1.6%, due to the impact of the 2008 international financial crisis).
Figure 1 therefore compares current US growth to a 20-year moving average of 2.2% - this figure is so close to that for other periods that taking another medium/long term moving average would make no significant difference.
The trough of the most recent US business cycle was 1.3% in the 2nd quarter of 2016 - 0.9% below its long-term growth rate. Even calculating in an extremely mechanical way, it would be assumed that at the top of the business cycle, to maintain the long-term average, US annual GDP growth would reach 0.9% above its 2.2% long term average – which would predict a peak growth rate of 3.1%, which is actually above the 2.8% in the latest quarter. The growth rate in the 2nd quarter of 2018, far from being ‘historic’, therefore was merely a normal business cycle fluctuation and, as already shown, was a lower figure than under other US presidents.
Why does the Trump administration make exaggerated claims?
Finally, if it has been shown that the Trump administration’s claims on the US economy are false, and even the serious US media knows they are false, why are they made?
The problem for the Trump administration is that because what is occurring in 2018 is a normal business cycle upturn this will inevitably be followed by a US business cycle downturn. At that time the pain caused by the tariffs which it has introduced affecting US companies, workers, farmers and consumers will become much greater. It is for this reason that the Trump administration has to go very rapidly, making exaggerated claims, to take advantage of what it sees as a narrow window of opportunity.
This situation is clear not only from the fundamental data on the dynamics of the US economy given above but also from the projections of the IMF. Figure 2 therefore shows the IMF’s latest projections for the US economy. As may be seen the IMF projects US growth in 2018 at 2.9%, maintenance of a still above medium/long term average growth rate of 2.7% in 2019, but then falling to a below average growth rate of 1.9% in 2020, and to only 1.7% in 2021 - almost back to 2016’s extremely poor performance. While the precise details of the IMF projections can be discussed the fundamental dynamics it projects are simply those of a normal US business cycles and are fully in line with the data given above.
The factual situation of the US economy is clear.
(1) Strictly mathematically the US formula for calculating the 2nd quarter growth rate, which is used in this article, is:.
(Q2/Q1) raised to the 4th power -1
* * *
The Chinese edition of this article originally appeared at Guancha.cn