Even before the disastrous U.S. Federal Government partial shutdown – which just ended after 35 days – the U.S. economy was in significant trouble.
Through the last half of 2018, economic data from most of the authorities rendered the triumphant Presidential tweets more and more hollow. This is continuing into 2019.
Disturbingly, the areas of greatest deterioration are those where President Trump has claimed special prowess.
No area of economic failure could be more embarrassing than the trade deficit. This is where Trump was most scathing of his predecessors.
In June 2016, he tweeted:
The average monthly trade deficit for the three preceding months – March, April and May 2016 – was US$38.6 billion (AU$53.67 billion). That represented an annual trade deficit of about US$463 billion (AU$643.8). Yes, historically high.
Now, after two years of “renegotiated” trade deals, the trade deficit in October 2018 – the latest month available – was US$55.5 billion (AU$76.5 billion), the worst monthly outcome since October 2008, at the depths of the Great Recession. The average for the last three months is US$54.6 billion (AU$75.9 billion), an annual rate of US$655 billion (AU$910.7 billion).
Tourist arrivals in the U.S. have suffered a significant decline since Trump took charge. Average annual growth in tourist revenue for the last seven Obama years, from 2010 to 2016, was 7.7%. In contrast, the increase in 2017 was just 1.2% and in 2018 2.4%. These are declines in real dollars.
After Trump’s inauguration, the impressive drop in the jobless rate through the Obama years continued in virtually a straight line. Until, that is, last September when it appears to have bottomed out at 3.7%. Whereas comparable countries such as Germany, Canada, the Netherlands and China have seen a continuing decline since September, the jobless rate has started to rise again in the U.S. It increased to 3.8% in October, and to 3.9% in December.
It seems unlikely – even before the recent shutdown – that the jobless rate will fall below 3.5%, as happened in the Lyndon B Johnson era and is happening today in Germany, Mexico, Switzerland, the Czech Republic, Vietnam, Japan, and about 35 other nations.
Persons who want a job numbered 5,327,000 in December, up 42,000 on the December before.
Early warnings of a weak jobs market are the initial jobless claims and continuing jobless claims. These are reported weekly with just a two-week lag. Continuing claims have steadily risen over the last three months.
This contrasts with the same period at the equivalent stage of the Obama presidency in 2010-11:
According to the PayScale Index, real full-time wages fell by 1.3% over the year to September 2018. That is after allowing for inflation, which averaged 2.4% over the year.
The decline in incomes for the majority of Americans is confirmed by the savings data.
At the end of 2016, after eight years of the Obama Administration, Americans had saved 6.7% of their personal disposable income. This level was maintained in 2017, but through 2018, as Trump’s policy changes took effect, it has declined. By June it had slipped to 6.5%, by August to 6.3% and by November to 6%.
Contrary to the promises of increased prosperity for all following Trump’s tax cuts for the rich, allocations for urgent needs for families in poverty increased in both 2017 and, again, in 2018.
Preliminary figures for September – the last month of the U.S. fiscal year – show year-on-year increases for each of the last two years in the national school lunch program, the school breakfast program and the child/adult care food program.
Federal Government debt
With so much happening in Washington last week, a disturbing economic fact disclosed by Treasury has been largely ignored. Total Federal debt added in the two years since Trump’s inauguration on 20 January 2017 was US$2,005.9 billion (AU$2,789.1). That’s $2 trillion.
Most of that – more than US$1.48 trillion (AU$2.1 trillion) – was added in 2018, as Trump’s trade, tax and spending policies took greater effect. That is the third highest annual increment in U.S. history — the only higher years being the Great Recession years of 2009 and 2010.
But here’s the thing. Most well-managed economies have dramatically reduced their national debt over the last two years of global recovery. These include Germany, Russia, the Netherlands, New Zealand, Denmark, Norway, Sweden, Switzerland and several others.
The reason for the debt blow-out is twofold. Federal spending increased dramatically in both 2017 and 2018. And tax revenue collapsed.
In the full financial year to September 2018, spending exceeded revenue by US$779 billion (AU$1,083.1 billion). The budget is on track this year for spending to exceed revenue by a staggering US$1,075.6billion (AU$1,495.5 billion).
Interest on the debt
The latest U.S.Treasury update shows interest on this year’s Federal Government debt at US$591.4 billion (AU$822.30 billion). That is about US$70 billion (AU$97.3) more than the second highest year on record, which was last year.
This is more than is being spent on education, veterans’ affairs, homeland security, agriculture, transportation and the State Department combined.
Just 100th of this would give Trump US$5.9 billion (AU$8.2 billion) for his southern border wall.
The U.S. stock markets surged in 2017, as did most exchanges around the world. In 2018 and 2019, however, the situation has been more fraught. The Dow Jones industrial average collapsed by more than 5,000 points, or 18.8%, in 12 weeks near the end of 2018. It has recovered since but still remains nearly 2,000 points, or 7.4%, below the level one year ago.
Even the rich must now be getting apprehensive.
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