Trump’s Economy Is On The Cusp Of Negative Growth – Forbes

President Trump boasted in December 2017 that the economy could grow at 4%, 5% or maybe even 6% when he was President. The economy did well in that quarter, growing at 3.5% on an annualized basis. Unfortunately, that was essentially a peak for his Presidency. Except for growth of 3.5% in the June 2018 quarter (more than likely due to the tax cut sugar rush), there has only been one other quarter since then that has had over 3% growth (3.1% in the March 2019 quarter), and growth has been at 2% or less the past two quarters.

The December 2018 quarter had Trump’s weakest GDP growth of 1.1% with almost all of the growth coming from consumer spending (0.97% or 97 basis points of the 110 total). Business spending added 53 basis points or 0.53% to the growth rate, but this was offset by a negative 35 basis points’ impact from trade and 7 basis points from government spending. And over the past two quarters business spending has been a drag on the economy with few signs that it is improving.

If this year’s December quarter comes anywhere close to the 0.4% that the Atlanta Fed is projecting or the 0.7% from the New York Fed, it would be by far the lowest growth of Trump’s Presidency.

While consumer spending is strong, the trend is downward

The Census Bureau released its Advance Retail Sales estimate for October in mid-November. The three-month change on an annualized basis was 4.2%; however, this is a drop from 5.7% in September and more than a 50% decline from 9.4% in May this year. The graph below from Guy LeBas at Janney shows the results over the past six months.

December quarter’s growth could be negative

The Federal Reserve Bank of Atlanta latest GDPNow estimate for the December quarter’s GDP growth came in at 0.4%. While the Blue Chip consensus is running higher than the GDPNow estimate, the consensus is showing a lower rate of growth than even the September quarter’s 1.9%.

The Federal Reserve Bank of New York projection of 0.7% also has GDP growth running under 1% for the December quarter.

Chicago Fed National Activity Index fell in October

The Chicago Fed National Activity Index or CFNAI is a monthly index designed to gauge overall economic activity and related inflationary pressure. The latest report, which was released yesterday, said, “Led by declines in production-related indicators, the Index fell to –0.71 in October from –0.45 in September. Two of the four broad categories of indicators that make up the index decreased from September, and all four categories made negative contributions to the index in October. The index’s three-month moving average, CFNAI-MA3, moved down to –0.31 in October from –0.21 in September.”

Trade or inventory declines could create negative growth

The GDP calculation is based on quarter-to-quarter changes in the economy. Since one quarter’s change in any category is multiplied by four to obtain a yearly estimate, a larger-than-normal movement in just one of them can create an outlier result. This may result in an inaccurate longer-term reading of the economy but creates headlines.

Two of the categories that can have volatility are trade and inventory.

For the 11 quarters that Trump has been President, 3 of them have seen trade generate 68 basis points or greater negative impact and inventory swings produce 64 basis points or greater negative effect 4 times.

If the trade balance becomes worse due to companies importing goods to beat increased tariffs, such as the ones planned to go into place on December 15, or companies decide to decrease their inventory levels due to concerns about the economy, the resulting multiplication effect could subtract 0.5% or even more than 1% from the total GDP calculation. This could result in GDP growth showing a contraction for the quarter.