Trump's 2020 Bet on the Economy Takes Hit Amid Signs of Slowdown
Trump has long pinned his hopes for re-election on voters ignoring the controversies and rewarding him for a booming economy.
(Bloomberg) -- President Donald Trump has long pinned his hopes for re-election on voters ignoring the controversies that have dogged his administration and rewarding him for a booming economy and strong jobs growth.
But a disappointing May jobs report that fell significantly short of expectations underscores the risks of the president’s strategy -- particularly at a moment when Trump is seeking to leverage U.S. economic strength on the international stage for political wins at home.
A Labor Department report on Friday showing employers added only 75,000 jobs in May served as the latest sign the economy is slowing as Trump heads toward the 2020 campaign. Wages also posted the slowest growth since September. Data on retail sales, factory output and home purchases also show the economy struggling this quarter.
Payroll growth also has slowed noticeably this year, to a 164,000 monthly average, down from a 223,000 monthly average in 2018.
“It definitely looks like we’ve downshifted in the pace of job growth,” said Michael Feroli, chief U.S. economist for JPMorgan Chase & Co., who called the job results “disheartening.” He added that the Labor Department survey, taken in the middle of the month, probably didn’t capture the full impact of escalating trade tensions.
Troubling Developments
Those are all troubling developments for the White House, which has repeatedly argued that Trump’s unconventional style and willingness to flout the norms of Washington can be justified as a businessman president bringing prosperity to the nation.
Trump’s reliance on economic strength is laid bare in polling data, which shows the issue as a rare area where voters give the president credit. In an Economist/YouGov poll released this week, 48% of Americans said they approve of Trump’s handling of the economy, with 40% disapproving.
But Trump is underwater on nearly every other issue surveyed, from social issues like abortion and civil rights to government priorities like education, immigration, health care and foreign policy.
White House and campaign officials have openly acknowledged that a thriving economy is central to the president’s re-election chances. They note that a strong economy in an election year has historically been among the best predictors of a president’s re-election, absent a war with significant U.S. casualties.
‘Best Economy’
“There’s nobody that I see that should be able to win,” Trump said of his potential Democratic opponents in an interview earlier this week with ITV. “Look, I’m running on the best economy in our history.”
Late last month, aides circulated a New York Times op-ed by Steven Rattner, the former Obama administration official who led efforts to shore up the auto industry, saying the economy offered Trump “a meaningful tailwind” in the 2020 election. Rattner pointed to models created by a Yale University professor and Trend Macrolytics LLC, a macroeconomic forecasting and research consulting firm that predicted the president’s re-election based on the state of the economy. Trump later tweeted an acknowledgment of the piece.
Compounding the problem for Trump is that a slowing economy would not only hurt his standing among voters, but make it harder to garner foreign policy victories by imposing or threatening tariffs.
The president’s levies have already wiped out all but $100 of the average American household’s savings from the GOP’s tax cuts, passed in 2017. And that’s just beginning of the mounting financial hit to families. If the president makes good on his threats to impose tariffs on virtually all imports from China and Mexico, those middle-earning households could pay nearly $4,000 more.
Vice President Mike Pence defended those costs on Thursday, arguing that a “booming” economy could afford the costs of tariffs on Mexican goods the administration hopes will slow migration flows.
“We’ll continue to stand for a growing economy, but ending the crisis on our southern border is the number-one priority for this president and this administration,” Pence said.
Impeachment Protection
Trump has suggested the economy’s performance should protect him from congressional Democrats considering impeachment related to Special Counsel Robert Mueller’s Russia investigation.
“You can’t impeach a president for creating the best economy in our country’s history,” Trump tweeted last month.
But those rationales could disappear if the economy continues to slow. Trump could face tougher attacks on policies he pursued, like the massive tax cut that mostly benefited corporations, if the perception of shared economic success disappears. A Congressional Research Service report released late last month showed the tax cuts had only a minimal impact on overall economic growth, while substantially increasing budget deficits.
Still, Trump has plenty of time to resolve the trade disputes with China and Mexico ahead of the campaign year. And there are no signs yet that the economy has tipped into recession, despite signs of danger ahead from one of Wall Street’s favorite indicators -- an inverted curve in yields on U.S. Treasury debt. Indeed, the economic expansion is poised in June to turn 10 years old, matching the longest on record.
Kevin Hassett, the departing chairman of Trump’s Council of Economic Advisers, said on CNBC that the jobs report was disappointing but wage gains mean the economic outlook is still solid. Flooding in the central U.S. may have reduced the May payroll number by 40,000 jobs, Hassett said on Bloomberg Television.
There’s also a chance that the lagging jobs numbers prompt the Federal Reserve into an interest-rate cut that Trump has long lauded as necessary to unlock a turbo-charging of the U.S. economy.
Earlier in the week, Fed Chairman Jerome Powell signaled he’s open to easing monetary policy amid the trade fights. U.S. stocks rallied on the disappointing jobs numbers Friday as investors bet the news would make such a rate cut more likely.
To contact the reporters on this story: Justin Sink in Washington at jsink1@bloomberg.net;Mike Dorning in Washington at mdorning@bloomberg.net
To contact the editors responsible for this story: Alex Wayne at awayne3@bloomberg.net, Joshua Gallu, Justin Blum
©2019 Bloomberg L.P.