Trump Boasts on Economy Undercut by Weak Middle-Class Pay Gains
Trump Boasts on Economy Undercut by Weak Middle-Class Pay Gains
(Bloomberg) --
President Donald Trump boasts that a robust economy will protect him from impeachment and ensure his re-election, but it’s an argument resting on a shaky foundation.
The middle-class Americans who are the main targets of Trump’s economic pitch aren’t sharing much in the gains of U.S. growth. Worse yet for Trump, wage growth has been slower in the counties he carried in 2016.
That risks blunting his message with the Republican political base just as he’s turning to GOP lawmakers to defend him against an accelerating effort by Democrats to impeach him.
By several measures, middle-class Americans’ incomes have risen more slowly under Trump than during Barack Obama’s final years -- hardly a period renowned for gangbuster pay increases. Workers should finally be getting big raises with the unemployment rate down to 3.5%. Yet while wage growth picked up last year, it is still subdued and slowing again after manufacturing output contracted in the first half of the year.
“That’s pretty disturbing,” said Heidi Shierholz, a senior economist at the Economic Policy Institute, a liberal-leaning think-tank in Washington. “In a labor market with unemployment rates this low, we should see much stronger wage gains.”
Meager paycheck gains undercut the president’s “Make America Great Again” appeal promising better times for middle-class workers who felt left out of the tech and finance boom. The theme has resurfaced in Trump’s impeachment defense. “Impeached for what, having created the greatest economy in the history of our country?” Trump asked in a recent tweet.
That argument is also a pillar of his re-election campaign, as Republicans look to make up for the president’s low job approval ratings and the serial controversies swirling around his administration.
The economy’s overall performance hasn’t changed much since Trump took office, with GDP growth averaging 2.6% versus 2.4% during Obama’s second term. That’s far below Trump’s own forecasts. On Wednesday, the Commerce Department reported the economy expanded 1.9% at an annualized rate in the third quarter, a level that when Obama was president Trump derided as a sign the “economy is in deep trouble.”
While the jobless rate continued to fall during during Trump’s first two years, median household income, adjusted for inflation, grew at an average annual rate of 1.3%. That’s down from a 4.1% annual rate the previous two years and a 1.8% annual rate during Obama’s entire second term, according to U.S. Census data released last month.
Asked about the income and wage data, White House spokesman Judd Deere said Trump’s “policies of lower taxes, deregulation, and fair and reciprocal trade have supported the longest economic recovery in U.S. history with record low unemployment and rising wages.”
Heritage Foundation fellow Stephen Moore, a former Trump campaign adviser, has used estimates from Sentier Research to make a claim -- repeatedly echoed by the president -- of “gigantic” income gains for families of $5,003. But Moore set up a comparison that burdened the Obama administration with the aftermath of the recession, using as his starting point the recession’s official June 2009 end. Household incomes continued to drop for another two years amid high unemployment.
The Sentier estimates, which incorporate data through August, still show better income growth under Trump -- an average annual rate of 3% -- but they use a different data source than the government’s usual household income measurement.
Multiple other measures of workers’ wages show tepid growth under Trump despite a roaring stock market, surging corporate profits and a $1.5 trillion deficit-financed tax cut Trump promoted as a way to rev up pay gains.
That is especially so in Red America. In counties Trump won over Democrat Hillary Clinton in 2016, growth in real average weekly earnings slowed to a 1.2% annual rate under his presidency, down from 1.5% the prior two years, according to a Brookings Institution analysis for Bloomberg News of county-level wage data through the first quarter of this year.
In the presidential battlegrounds of Wisconsin, Michigan and Pennsylvania -- three closely fought states crucial to Trump’s election -- the drop-off has been sharper, with weekly earnings in counties he carried up 0.8% annually versus 1.8% the previous two years. The manufacturing recession threatens to further weaken pay growth in those states, where 1 in 6 workers in Trump-voting counties hold factory jobs.
Trump often claims that wage gains have picked up since he took office. But once inflation is factored in, overall progress on wages doesn’t look much different. Real average hourly earnings under Trump have grown at an average annual rate of 1.1% through September versus 1% during Obama’s second term.
Workers in the middle fared worse. The median weekly paychecks for full-time workers, adjusted for inflation, have grown at an average annual rate of 1% through September versus 1.5% during Obama’s second term.
A measure created to minimize potential distortions from more low-wage workers entering the workforce also shows slower pay growth under Trump.
The Atlanta Federal Reserve Bank’s national wage growth tracker is based on surveying the same workers 12 months apart on their pay and calculating their median raise. Adjusted for inflation, the index increased at an average annual rate of 1.3% during the past two years versus 1.7% during Obama’s second term.
Long-Term Changes
Many economists blame long-term changes in the job market for the slower wage growth. Some researchers point to increasing corporate concentration in industries and the rise of “Superstar Firms” reducing the bargaining power of workers. Displacement of workers through automation and competition from overseas workers in a globalized economy can depress wages. The job market also shifted away from some traditional middle-class occupations, such as manufacturing, which now employs fewer workers. And the atrophying of unions has eroded workers’ leverage to negotiate higher pay.
Democrats also blame Republican policies, including blocking an increase in the federal minimum wage and the Trump administration scaling back an Obama initiative to require overtime pay for more workers. And the trade war has contributed to the slowdown in manufacturing.
Still, in a dynamic economy, some groups are doing better than others. Real median earnings for high-school educated men -- a key Trump constituency -- rose at a 1.2% average annual rate during Trump’s first two years, up from a 0.4% rate the prior two years, according to Census data for 25- to 64-year-old full-time workers. Conversely, high-school educated women’s real median earnings declined at a 1.1% annual rate under Trump versus a 0.6% rise during Obama’s final two years.
High-school-educated men still haven’t caught up to their pay in 2000. Their $45,459 median earnings in 2018 was $2,128 lower than their counterparts at the turn of the century. High-school-educated women are further behind, with 2018 median earnings of $32,412, down $2,356.
Weak pay increases contribute to “ambiguous feeling” about the economy even as unemployment remains at historic lows, said Alan Abramowitz, a political science professor at Emory University who studies public opinion and presidential election forecasting.
“What matters politically is the subjective economy, how people feel about the economy,” Abramowitz said. “Real incomes aren’t rising that much, so it’s not obvious that things are that good.”
--With assistance from Alex Tanzi.
To contact the reporters on this story: Mike Dorning in Washington at mdorning@bloomberg.net;Catarina Saraiva in Houston at asaraiva5@bloomberg.net
To contact the editors responsible for this story: Joe Sobczyk at jsobczyk@bloomberg.net, Mike Dorning, John Harney
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