President Trump’s ‘Make America Great Again’ Economic Growth Potential
$DIA, $SPY, $QQQ, $VXX
The Big Q: Has been a decline in the potential growth of the economy that may defy both the animal spirits unleashed by Donald Trump’s election as well as his “Make America Great Again” aka MAGA, fiscal policies, assuming they get fully implemented.
Yes, much has changed since last November 8th’s Election Day, but some Key things have not.
Demography has not changed, neither has technology, globalization might change, plus the world is very competitive as a result of relatively free trade, notably not all fair.
However, productivity growth is still lamentable, and may improve as a result of MAGA policies.
We should all consider the following data:
- Potential output. The Congressional Budget Office (CBO) calculates a Quarterly series for potential real GDP growth that starts in Y 1952 and is available through 2027. The outlook for this year and beyond is based on demographic projections used to estimate labor force growth and assumptions about productivity. From Y 1952 through Y 2001, potential real GDP grew in a range mostly between 2.5% and 4.0%, averaging 3.5%. Since then, growth has consistently been below 3.0%, and actually below 2.0% since Q-1 of Y 2007.
- Real GDP. It tells the same story as the CBO’s estimate for potential output. From Y 1960 through Y 1975, growth averaged 4.7%. From Y 1975 through Y 2007, it averaged 3.7%, diving during the Great Recession, and has been and is still below 2.0% since Q-3 of Y 2009.
- Labor force. President Trump may or may not succeed with his MAGA plans. But, as analysts Edward Yardeni noted, he cannot Make America Young Again (MAYA), he cannot bring back the Baby Boom. There has been a dramatic slowing in the growth of the working-age population and the labor force, particularly of the 16 – 64-year-olds. The actual growth rates of this age segment of the working-age population and the labor force are down to 0.5% and 0.3% over the past 10 years at annual rates.
- Productivity. The big unknown here is whether President Trump’s MAGA policies can revive productivity growth. That is the only way that real GDP growth can exceed 2.0%. Getting it up to President Trump’s 4.0% goal could be challenging, even for him. Nonfarm productivity growth has been below 1.0% since Q-4 of Y 2014, based on the 5-year per cent change at an annual rate, manufacturing has contributed to this weakness, rising less than 1.0% since Q-4 of Y 2015.
- S&P 500 Earnings. The potential growth of the economy matters a lot for the stock market since it determines the potential growth of corporate earnings. The S&P 500 forward earnings since Y 1979 (the data start year), remains on a 6%-7% annualized growth trajectory. Over this same frame, the S&P 500 has been tracking growth of 8%-9%, with more Northside and Southside volatility than in forward earnings.
Many analysts and participants are skeptical that the strength in the soft data in the US will trickle down to the hard data until The Trump Administration succeeds in cutting taxes, reducing regulations and in boosting infrastructure spending. We wait, we see…
Wednesday, the US major stock market indexes finished at: DJIA -59.44 at 20591.86, NAS Comp -30.61 at 5836.16, S&P 500 -8.85 at 2344.93
Volume: Trade on the NYSE came in below average at 893-M/shares exchanged.
- NAS Comp +8.4% YTD
- S&P 500 +4.7% YTD
- DJIA +4.2% YTD
- Russell 2000 +0.2% YTD
|HeffX-LTN Analysis for DIA:||Overall||Short||Intermediate||Long|
|Neutral (-0.03)||Bearish (-0.35)||Neutral (-0.08)||Bullish (0.33)|
|HeffX-LTN Analysis for SPY:||Overall||Short||Intermediate||Long|
|Neutral (0.03)||Neutral (-0.24)||Neutral (-0.08)||Bullish (0.42)|
|HeffX-LTN Analysis for QQQ:||Overall||Short||Intermediate||Long|
|Neutral (0.17)||Neutral (0.07)||Neutral (-0.06)||Very Bullish (0.50)|
|HeffX-LTN Analysis for VXX:||Overall||Short||Intermediate||Long|
|Neutral (0.05)||Neutral (0.05)||Neutral (0.05)||Neutral (0.04)|
The US Financial markets are closed for Good Friday, have a terrific Easter Weekend.