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Posted in: Market NewsPolitics
Published:
December 25, 2019 11:00 PM UTC

Trump Celebrates Booming Economy, But It May Fizzle in 2020

Given the current momentum in the lagging economic indicators, there's probably still enough in the tank to avoid outright recession in 2020.

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  • The economy posted strong holiday sales.
  • This joins the stock market and unemployment in signaling an economic boom.
  • But leading indicators aren’t nearly as positive.

For President Trump, you might think this would be a solemn holiday, given the recent impeachment. However, his approval rating has actually been on the rise recently, ticking up to as much as 44%, which marked his highest approval since early 2017. A good chunk of this is probably due to the bustling economy. We’ve witnessed a huge stock market rally and positive jobs data in recent weeks.

Trump took to Twitter Wednesday to remind voters of the economic surge with a tweet highlighting strong holiday shopping:

President Trump is celebrating strong retail sales this holiday season. | Source: Twitter

But will the stock market rally and other signs of economic strength be enough to secure Trump’s re-election bid in 2020?

Leading Indicators Offer Less Optimism

The economic numbers offer two different stories. One is favorable to President Trump. Trailing indicators such as retail sales, the stock market, and unemployment numbers are all booming.

But leading indicators have been declining recently. Things such as bond yields, durable goods orders, and manufacturing capacity utilization have pointed to a slowdown in economic momentum. Economic growth isn’t a switch that’s either on or off, but rather, it responds to feedback over a gradual period. Changes in Fed policy now, for example, may take as long as a year to translate into what’s happening for everyday Americans.

Meanwhile, lagging indicators such as the unemployment rate often don’t signal trouble until it’s too late. Look at the unemployment rate historically. It doesn’t generally move up much until a recession (shaded area) has already started:

The U.S. unemployment rate since 1948 | Source: St. Louis Federal Reserve

President Trump is correct that the unemployment rate is near its lowest levels since World War II. But consider 2000 or 2008 for example; the stock market had plunged and the economy went into recession long before the unemployment rate finally spiked.

Growth Won’t Pick Up

The nightmare scenario for Trump would be the economy careening into recession before election day. Historically, presidents don’t get re-elected if the economy stumbles on their watch. But given the current momentum in the lagging indicators, there’s probably still enough in the tank to avoid outright recession in 2020.

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That may not get growth going again though. Trump is hoping that the Fed’s recent rate cuts will lead to economic acceleration before November. But Moody’s chief economist, Mark Zandi, dismisses this possibility:

I don’t think we are going to see growth reaccelerate in 2020…The trade truce takes the recession risk off the table for now, but it’s not enough to propel stronger growth. If it’s a 2 percent economy, then all else being equal — and it’s a typical turnout — Trump will probably win. But if there’s strong Democratic turnout, especially in manufacturing states with weaker economies, those states will probably flip.

Stocks Aren’t The Whole Economy

NBC’s Ali Velshi noted how only 40% of Americans own stocks, primarily through retirement accounts. And fewer still look at the stock market as a key indicator of their well-being.

Velshi also pointed out how the unemployment rate isn’t as helpful to Trump as usual. Normally, when unemployment is low, people can demand wage hikes, but that hasn’t happened with this recovery. Wage increases have barely matched inflation. That might be a lump of coal for folks as they consider their 2020 vote.

This article was edited by Gerelyn Terzo.

Last modified: January 22, 2020 11:40 PM UTC

Ian Bezek @irbezek

I've been trading stocks and options for more than a decade. Ex-hedge fund analyst for three years. Currently in Colombia watching football and enjoying the weather. You can reach me on Twitter at @irbezek.

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