A Requiem for the Obama-Trump Economy

(Bloomberg Opinion) -- Last Thursday morning, just as the initial unemployment claims report was making history, the Bureau of Economic Analysis at the Commerce Department released its third estimate of gross domestic product for the fourth quarter and full year 2019 to an understandably uncaring world.

This is what used to be called the “final” estimate (complete with scare quotes), but U.S. GDP numbers are never final. The annual update of the past five years of data will be released in July, and there will be many revisions after that. Still, the data released last week do provide the best portrait yet of economic growth Before Coronavirus, including an important data point missing from the first two estimates of fourth-quarter GDP: gross domestic income.

GDI should in theory equal GDP, but is derived from different data sources and the two never quite match. In 2010, economist Jeremy Nalewaik, then of the Federal Reserve Board, looked through a quarter-century of data and concluded that GDI is a more accurate measure of the economy than GDP — that is, “it is a better predictor of a wide variety of business cycle indicators that should be correlated with true output growth.” In a commentary to Nalewaik’s paper, then-BEA-director J. Steven Landefeld said he wasn’t convinced that GDI was actually better than GDP, but agreed that it deserved more attention. The BEA started including GDI growth estimates in its news releases in 2011, and began publishing an average of GDP and GDI in 2015. The Federal Reserve Bank of Philadelphia, meanwhile, began publishing its own smoothed average of real GDP and GDI growth as GDPplus.

All this is a long way of saying that the new GDP and GDI numbers provide the best opportunity yet to address what seemed like a reasonably important question until a few weeks ago: Did President Donald Trump in fact preside over “an economic turnaround of historic proportions,” as he put it in the summer of 2018? Or did things pretty much keep trundling along as they had earlier in the expansion — albeit to happier effect as unemployment rates continued to fall, pulling more and more people back into the labor force, and delivering needed wage gains to those at the bottom of the income distribution? Well ...

The chart shows year-over-year growth rather than the annualized quarter-to-quarter growth that is the headline GDP number because the former delivers a smoother, easier-to-decipher picture, one that shows Trump’s time in office to have been characterized by steadier but not markedly faster growth than President Barack Obama's two terms. Here’s another way of looking at it: real annualized growth starting from the first quarter of each man’s presidency.

So GDP growth was faster under Trump, GDI growth was faster under Obama, and when you average the two Trump comes out a little bit ahead, but basically it’s a wash. I measure growth from the first quarter in office because it presumably takes a while for a new president’s policies to have an effect — probably longer than one quarter, to be honest. Still, for those who might argue that I am cherry-picking, here’s growth from the quarter before each took office.

Here growth under Trump is faster by every measure, especially GDP. This is not, however, what anyone could call an economic turnaround of historic proportions, especially when you consider that Obama’s numbers include a quarter of sharp Great Recession GDP loss that I don’t think anyone would seriously attribute to his decisions and policies.

One objection to such comparisons is that growth tends to be faster early in an expansion, when the economy is still bouncing back from a recession, than it is several years in. This sounds logical enough, but when I actually ran the numbers last year I found that while it was true for most business cycles before 1990, economic growth during the expansions of the 1990s and 2000s started slow and gained speed over the years. The bounce-back may have been a characteristic of a goods-and-manufacturing-dominated economy, and now that the U.S. economic activity revolves mostly around services the business cycle is going to look different.

The U.S. economy of 2017 through 2019 was by most measures pretty solid, and we’re going to look back at it with much nostalgia in the coming months and years. I also don’t want to deny that, as my fellow Bloomberg Opinion columnist Karl Smith argued back in the prehistoric era that was last month, Trump put his stamp on the economy in some meaningful ways. But the evidence from the last GDP report before a virus changed everything seems to indicate that his impact was less than historic.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Justin Fox is a Bloomberg Opinion columnist covering business. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”

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