Will Slow Economic Growth Put Trump in the White House?

Will Slow Economic Growth Put Trump in the White House?

August 2nd, 2016

Gross domestic product (GDP) is the most relied upon measurement of economic growth. Last Friday, the U.S. Commerce Department reported that, during the second quarter of this year, GDP only grew at an annual rate of 1.2%.

The reported rate is more than twice as slow as the 2.6% rate which had been forecast by economists for 2016. It also indicates that America had the slowest first half of a year since 2011. With the national election 97 days away, the weak growth has provoked criticism from the Trump campaign. The Republican nominee’s supporters claim it as more evidence that Hillary Clinton is the wrong presidential choice, given that she wants to double down on the Obama administration’s economic policies that have failed to turbocharge growth.

The Republican nominee’s supporters claim it as more evidence that Hillary Clinton is the wrong presidential choice, given that she wants to double down on the Obama administration’s economic policies that have failed to turbocharge growth.

The Perspectives
Lawrence Kudlow is a prominent television commentator who advises Trump on economic issues. Kudlow argues that the disappointing 1.2% second quarter GDP figure is a sign that the Obama administration may be keeping America “perilously close to recession.” Kudlow notes that the administration, which took over at the end of the last recession in 2009, has overseen the slowest economic expansion since the 1940s. He believes that Clinton would only intensify the policies that have constrained growth. Clinton is proposing higher taxes on corporate profits, for instance, as well as stricter regulations that would hamstring key industries. Trump, on the other hand, wants to promote growth by cutting taxes and regulations. “If Trump stays on his growth message,” Kudlow says, “he’ll whup her in November.”
Jason Furman is the Chairman of the White House Council of Economic Advisers and serves as President Obama’s chief economist. Furman argues that the U.S. isn’t necessarily on track for a weak year in terms of GDP. The economist notes the Q2 figure of 1.2% was dragged down by spending trends that are subject to volatile change from quarter to quarter. Inventory investment by businesses, for instance, is extremely mercurial and often “adds or subtracts a full percentage point” in quarterly GDP figures. Furman predicts that a sharp increase in inventory spending “will likely make a positive contribution to growth” in the last two quarters of 2016. After all, despite the disappointing GDP number, the quarterly report showed very strong household consumption, meaning business inventories are being depleted and will likely have to be restocked.
Gregory Daco is the head U.S. economist at Oxford Economics, a commercial research group that has a strong record of correctly predicting America’s national election outcomes. Daco’s group, which currently forecasts a narrow Clinton victory over Trump, believes that GDP, although a crucial measurement, is not among the most important economic figures for determining voter decisions. Real disposable income growth, unemployment, and inflation, Daco argues, are more pertinent because they directly track “how people are feeling in terms of their wages, professional situations and their costs.” With this in mind, Daco says 2016 macroeconomic results actually “bode in favor of Hillary.” Wages and benefits for civilian workers have increased substantially, while unemployment is less than 5% and inflation is well below the 2% target.

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