It’s official: The economy last year grew at its slowest pace of President Trump’s term so far, expanding by 2.3 percent, well below the clip the president pledged to deliver.
The report from Trump’s own Commerce Department also challenges a claim the president has already made a staple of his reelection pitch: that the economy he is presiding over is “the best it has ever been,” and enjoying a “boom the likes of which the world has never seen before.”
To the contrary, the economic expansion is merely maintaining its pace from President Barack Obama’s second term — and tracking below its rates during the Carter, Reagan and Clinton administrations:
In the last quarter of 2019, growth clocked in at 2.1 percent, just above a rate Trump said indicated the economy was “in deep trouble” back in 2012:
Q1 GDP has just been revised down to 1.9% http://t.co/tX9ij8KQ The economy is in deep trouble.
— Donald J. Trump (@realDonaldTrump) May 31, 2012
That year, Trump also pointed to the nation’s $16 trillion debt, and its proportion to total economic activity, as a sign of an impending “meltdown.”
Our $16T national debt is now bigger than our $15T GDP. If Obama is re-elected watch for an economic meltdown in 2013.
— Donald J. Trump (@realDonaldTrump) September 12, 2012
Now, after the president’s signature $1.5 trillion tax cuts have failed to provide the “rocket fuel” he projected for growth while widening the deficit, the debt has climbed to $18 trillion. And the Congressional Budget Office predicts it will reach $31 trillion by 2030, amounting to 98 percent of GDP.
There’s reason to believe the economy’s performance over the past three months was even weaker than the fourth-quarter GDP number suggests, as Gregory Daco of Oxford Economics notes:
The 2.1% #GDP print gives “optical illusion” of an economy chugging along at moderate 2% clip at end-2019, but composition of growth reveals softer picture.
More than 70% of Q4 advance came from temporary collapse in imports, business investment subdued & consumers cautious pic.twitter.com/fhj8GVD1ij
— Gregory Daco (@GregDaco) January 30, 2020
And the consensus view among economists is that the expansion will continue to slow this year, with the CBO projecting 2.2 annual growth.
More troubling, business investment contracted from April through December of last year. Boosters of Trump’s tax cuts said they would yield a boom in capital spending by businesses that in turn would improve productivity, setting the economy on a new, higher growth trajectory. That has failed to materialize, as my colleague Heather Long notes:
Big problem: US business investment contracted for most of 2019.
The GOP tax cuts were supposed to fuel a big biz investment boom, but that hasn’t happened. Many blame Trump’s trade war for spooking biz leaders.
Q1: 4.4% pic.twitter.com/B8aoo1C5ot
— Heather Long (@byHeatherLong) January 30, 2020
Indeed, business investment grew faster over Obama’s two terms than it has since Trump’s tax cuts took effect, as the New York Times’s Jim Tankersley points out:
Updated with today’s Q4 GDP figures:
Average quarterly investment growth, for:
*Obama’s full 2 terms
*Trump so far
*Obama’s terms post-recession
*Obama’s second term
*Trump pre-tax cuts
*Trump post-tax cuts pic.twitter.com/M2XA09orGy
— Jim Tankersley (@jimtankersley) January 30, 2020
Most economists chalk up the disappointing business investment results to the uncertainty sown by Trump’s trade wars. The president has eased hostilities on at least one key front by signing a phase-one trade agreement with Beijing, but that won’t necessarily translate into a turnaround in capital expenditures. “Spending on equipment likely will continue to drift down,” Pantheon Macroeconomics chief economist Ian Shepherdson writes in a note to clients. “This is not a positive sign for future productivity growth, and we expect no real upturn until the trade war is over. That will come much sooner if Mr. Trump is not re-elected.”
While the unemployment rate is at a five-decade low, my colleagues Heather Long and Andrew Van Dam note, “Job growth is expected to cool further this year as businesses struggle to find workers with the skills they need. Typically wages would surge in such a tight labor market, but earnings growth slowed slightly last year. For now, many Americans say it is still easy to find a job, but there are early signs companies are taking down job postings and demand has started to decline.”
Trump may be falling short on his promises to turbocharge growth while slashing the debt, but there is ample evidence Americans nevertheless are feeling bullish about their own financial position and the economic outlook broadly. Voters are giving Trump the highest marks of his presidency on his economic stewardship, according to the latest Washington Post-ABC-News poll. Consumer confidence is hitting new 52-week highs in Morning Consult’s monitor of that sentiment:
And the percentage of Americans naming economic issues as the nation’s biggest problem is at its lowest level since 2007, according to Gallup.
— Stocks stage late rally. The Post’s Taylor Telford: “The U.S. stock market staged a late rally Thursday as investors shrugged off some early concerns about risks posed by the coronavirus spreading through China, illustrating the volatility caused by uncertainty abroad. The Wall Street rally was a contrast to foreign markets, which largely slumped…
“The Dow Jones industrial average fell nearly 150 points at the opening bell, clawed back more than 100 points within minutes, then dropped again. It rallied in the afternoon, though, closing the day up 125 points. The Standard & Poor’s 500 and Nasdaq indexes both rose roughly 0.3 percent… Investors and business leaders are still unclear about the scope of the economic impact from the coronavirus, but numerous companies have pulled back or temporarily suspended operations.”
But Chinese markets open next week, and it’s going to be ugly. Bloomberg News’s Sofia Horta e Costa and Tian Chen: “Every other market has already reacted to the deadly virus threatening China’s economy. Soon it will be China’s turn, and it’s likely to be brutal.
“Stocks and commodities will almost certainly sink when financial markets reopen Monday for the first time since Jan. 23, while bond yields will drop. For equities, the declines are likely to be exacerbated by the amount of leverage in the market — near the highest in 11 months. That could create a downward spiral where steep losses become steeper as traders face margin calls.”
Emergency declared. The World Health Organization designated the coronavirus a “global public health emergency” as the death toll in China surpassed 200. The State Department is telling Americans not to travel to the country — and advising those there to consider leaving, per the Post’s Shibani Mahtani.
— Yield curve inverts again. Bloomberg News’s Anchalee Worrachate and Liz McCormick: “A key slice of the U.S. yield curve inverted on Thursday for the first time since October, reviving memories of growth fears that plagued investors last year and signaling doubts that the Federal Reserve will succeed in reviving inflation.
“The gap between the yield on three-month and 10-year Treasuries at one point slipped to as low as minus 2 basis points on Thursday… With the coronavirus outbreak threatening to disrupt the Chinese economy, concerns about the business cycle are undoubtedly a factor. But more important still are emerging doubts over the ability and commitment of policy makers to shore up growth and spur inflation.”
— Brexit Day is finally here. The Post’s William Booth and co.: “At 11 p.m. London time, or midnight in Brussels, Britain is officially out, after almost five decades with the closest of ties to Europe. The United Kingdom will now go it alone — and either roar ahead with Prime Minister Boris Johnson’s vision for a can-do “Global Britain,” or the country will find itself diminished, economically, and as solo player on the world stage…
“Britain’s leaving will profoundly change its relationship with Europe and the rest of the world. But that will barely be felt by the average citizen, as Britain enters an 11-month transition period, where it will continue to obey the rules of the E.U., even though it’s no longer helping to make them.”
The internet giant posted increases in revenue and profit after shoppers flocked to it during the holiday season. Amazon shares soared more than 10 percent in after-hours trading. That added $100 billion to the company’s valuation, at least for the night, pushing it above $1 trillion again.
— Tensions surface between U.S. and Mexico: “Fresh battle lines are being drawn that could lead to farm trade restrictions between the United States and Mexico, a letter from a top Mexican trade official seen by Reuters shows, despite the goodwill generated by the newly signed North American trade pact,” Reuters’s Sharay Angulo reports.
“In response to a letter earlier this month from the top U.S. trade negotiator pledging protectionist measures for farmers in the politically important states of Florida and Georgia, Mexico is promising to retaliate in kind if such steps are taken … The letter, obtained from a third party, was addressed to the head of Mexico’s National Farm Council, or CNA, and dated Jan. 27, just two days before [Trump] triumphantly signed the revamped North American trade deal, known as the U.S.-Mexico-Canada Trade Agreement (USMCA), in Washington, attended by smiling American farmers as well as senior Mexican officials.”
— Ross draws criticism for coronavirus comments: “Commerce Secretary Wilbur Ross said the Chinese coronavirus — which has killed 171 in China and infected more than 8,100 people — could ‘help’ to bring jobs to the United States because companies will be moving operations away from impacted areas,” my colleague Rachel Siegel reports.
“During an appearance on Fox Business, Ross said that he didn’t ‘want to talk about a victory lap over a very unfortunate, very malignant disease,’ and expressed sympathy for the victims. But he said the pneumonia-like virus would be a consideration for American businesses that are scrambling to determine how the outbreak will affect their supply chains. He pointed to the 2003 SARS epidemic, the ‘African swine virus’ and now coronavirus as ‘another risk factor that people need to take into account.’
- More on the context: “‘I think it will help to accelerate the return of jobs to North America, some to [the] U.S., probably some to Mexico as well,’ Ross said. He then said Apple was ‘talking about figuring out how to replace some of the Chinese production.’ Apple had plans to assemble some phones and computers outside China before the coronavirus outbreak.”
- On the criticism: “Public health experts were quick to criticize Ross’s comments as inaccurate and dangerous, saying such messaging could suppress reports of new infections … Georges C. Benjamin, executive director of the American Public Health Association, said that American companies would have more reason to be concerned about gun violence or measles outbreaks stateside ‘in terms of actual risk to their health than coronavirus.’ ”
— Trump said they would create thousands of jobs. They did not: “In his first address to the U.S. Congress, [Trump] hailed General Motors Co, Harley-Davidson Inc, Intel Corp and seven other companies as innovators and job creators, predicting they would be among those producing ‘tens of thousands of new American jobs’ and investing ‘billions and billions of dollars,’ ” Reuters’s Tim McLaughlin reports.
“Nearly three years later, with unemployment at the lowest in half a century, that first presidential portfolio has stumbled to fulfill that forecast. While Trump’s 10 companies have spent billions on new factories and upgrades, they failed to keep pace with new hires, according to a Reuters analysis of the group’s capital expenditures and headcount since 2017.”
IMPEACHMENT MINUTE: A speed read on the latest from the congressional impeachment process.
“Senate appears ready to reject witnesses in Trump impeachment trial, acquittal vote possible Friday.” By The Post’s Mike DeBonis, Seung Min Kim and David A. Fahrenthold
“Sen. Alexander calls Trump’s actions ‘inappropriate’ but rejects witnesses in impeachment trial.” By The Post’s Rachael Bade, Paul Kane and Karoun Demirjian
“Trump lawyer Pat Cipollone was a camera-shy Washington Everyman — until impeachment made him a star.” By The Post’s Manuel Roig-Franzia and Josh Dawsey
— IBM CEO Ginni Rometty is stepping down: “IBM said that Ginni Rometty will step down as chief executive in April, capping an eight-year run at the helm during which the technology giant struggled with growth. She will be succeeded by Arvind Krishna, currently the company’s senior vice president for cloud and cognitive software,” my colleague Jena McGregor reports.
“Rometty, a 40-year veteran of the company, will continue as executive chairman through the end of the year, when she will retire. In a statement, IBM said Krishna was the company’s chief architect of its acquisition of open source software company Red Hat, the largest acquisition in IBM’s history, and said James Whitehurst, senior vice president and CEO of Red Hat, would become IBM’s president. Krishna was also elected to IBM’s board of directors.”
- What comes next: “IBM called the transition the ‘outcome of a thorough succession planning process,’ ticking through Rometty’s milestones as CEO, such as acquiring 65 companies, building a $21 billion hybrid cloud business and transitioning the company’s portfolio toward higher value businesses, divesting nearly $9 billion in annual revenue.”
- This is another exit of a high-profile female CEO: “Rometty’s departure marks another exit from the ranks of female CEOs at the largest publicly traded companies. As of Jan. 15, the research and advocacy group Catalyst counted only 29 women, including Rometty, heading S&P 500 companies. That is less than 6 percent of CEO positions at those companies.”
— Government finds Southwest failed to prioritize safety: “A government report to be released in coming days says Southwest Airlines Co. failed to prioritize safety and the airline’s regulator, the Federal Aviation Administration, hasn’t done enough about it,” the Wall Street Journal’s Andy Pasztor and Alison Sider report.
“Southwest pilots flew more than 17 million passengers on planes with unconfirmed maintenance records over roughly two years, and in 2019 smashed both wingtips of a jet on a runway while repeatedly trying to land amid gale-force winds, according to the Transportation Department report, reviewed by The Wall Street Journal.”
- The report’s details: “The lapses are highlighted in a draft audit by the agency’s inspector general that also criticizes the FAA’s oversight of the carrier as lax, ineffective and inconsistent. The document indicates no agency enforcement action resulted from those safety slip-ups or certain other alleged hazards. In some cases, the report alleges, the FAA’s overall approach served to ‘justify continued noncompliance with safety regulations.’ ”
— Altria takes big hit on Juul investment: “Altria Group Inc. again slashed the value of its investment in Juul Labs Inc. and stripped down its agreement to provide services to the startup as it weathers regulatory crackdowns on the e-cigarette market,” the WSJ’s Jennifer Maloney reports.
“The tobacco giant … said the value of its stake in Juul fell by $4.1 billion in the fourth quarter. It now values the e-cigarette maker at about $12 billion, down from its $38 billion valuation when Altria invested in December 2018. It is the second big charge the Marlboro maker has taken on its controversial investment. In October, Altria wrote down its Juul stake by $4.5 billion. The company said the latest charge reflected mounting litigation against Juul.”
— Fed proposes another rollback of the Volcker Rule. The Post’s Renae Merle: “Federal regulators on Thursday proposed weakening key post-financial crisis restrictions on risky trading, handing Wall Street more momentum in rolling back tough industry regulations. The proposed changes would lift restrictions on big banks, such as Goldman Sachs and JPMorgan Chase, investing in venture capital and other types of funds.
“The effort comes a decade after risky trading was blamed for contributing to the near collapse of the U.S. financial sector and is part of a sweeping industry deregulation under the Trump administration that has helped boost banks to record profits… The proposal would eliminate a 3 percent cap on ownership of a venture capital fund. It would also allow banks to invest in debt-based funds among other changes.”
Industry cheers. From Greg Baer, president of the Bank Policy Institute: ““Today’s proposal will allow banks to get back to some important traditional commercial banking and asset management activities that the current rule prohibits, helping businesses grow and consumers build savings. These are client-focused, non-proprietary activities that the Dodd-Frank Act didn’t intend to prohibit, so this proposal is all gain and no pain.”
Industry critics jeer. From Greg Gelzinis, a senior policy analyst at the Center for American Progress: “Permitting banks to invest heavily in venture capital funds is illegal and unwise. Full stop. These speculative vehicles are types of private equity funds, a class of investments taxpayer-backed banks are prohibited from making under the Volcker Rule statute. This deviation from the law would inject significant risk into the banking system—threatening financial stability, taxpayers, and the broader economy.”
— How do your finances compare with the world’s richest? My Post colleagues have invented a tool to help you find out. Former New York City mayor and 2020 Democratic presidential candidate Mike Bloomberg, for example, is spending $11 million on a Super Bowl ad — an expenditure equivalent to a $17 purchase for the median American. Check it out here:
- The Commerce Department releases the latest information on personal income, spending and inflation data
From The Post’s Tom Toles: