Letting it Rip

With the President having delivered his State of the Union address, the senate having voted to acquit him of high crimes and misdemeanors (a result favored by 52% of Americans), and the Democrats having declared there is a 100% chance that President Trump will cheat in the November election, the country is about where it was when impeachment reared its head. The President’s supporters see him as a victim of Democrats’ inability to accept their loss in 2016, his opponents see him as a “cheat” planning to steal the 2020 election with the aid of foreign governments. Senate Republicans vow to subpoena Joe Biden’s son, adding to the former vice president’s primary campaign woes. House Democrats vow to continue their impeachment investigations by subpoenaing John Bolton. Rage reigns unabated, indeed intensified.

There is something rather odd about all this nastiness: Americans are paying little or no attention. Or, if they are, it is to increase their support for Trump. Gallup pollsters report that his approval rating has jumped by ten points from its low of 39% in October to 49% in late January, the highest since he took office. Among Republicans his approval rating is up six percentage points since early January, to 94%, and among independents it has risen five points to 42%. It is a different story among Democrats, only 7% of whom approve of Trump, creating the largest partisan divide in the recent history of polling.

Gallup also reports that Americans’ confidence in the economy is higher than at any point in the past two decades, and that 63% of Americans approve of Trump’s handling of the economy, the highest such rating for any president since George W. Bush benefitted from a patriotic surge immediately after 9/11. Almost six-in-ten adults, a record 59%, say they are better off financially than they were a year ago, and 74%, the highest recorded by Gallup since 1977, predict they will be even better off next year.

That augurs well for continued high levels of consumer spending and for the President’s re-election: the Wall Street Journal reports that an informal sounding of the world’s business elite gathered in Davos assigned probabilities of between 60% and 80% to four more years for Trump.

The President is prone to exaggerate his role in what he likes to call this “blue collar boom”, and plays fast and loose with many statistics, especially when trying to prove that his handling of the economy, of trade, of taxes, of the Fed, of … well, everything, beats that of all of his predecessors. Still, he has a powerful tale to tell.

The economy added 225,000 jobs in January, up from December’s 145,000 and far above most forecasts — “very strong … blew past expectations…” as CNBC’s Steve Liesman put it. The unemployment rate ticked up from 3.5% to 3.6%, which actually is good news. People neither in work nor looking for work are not counted as unemployed. In response to rising wages (hourly earnings up 3.1% over last year), a large number of men and women re-entered the work force and began looking for but have not yet found work, and so are counted as unemployed for now. In technical terms, the labor force participation rate rose by 0.2%, to 63.4%.

Ed Hyman, head of economic research at investment bank services firm Evercore ISI, was less impressed than most by the jobs report, but nevertheless expects the economy to grow 2.5% this year, which is probably what Treasury Secretary Steve Mnuchin had in mind when he lowered his forecast to below 3% because of Boeing’s continuing difficulties. Not quite what Trump would like, but it “ain’t chopped liver”, as Trump might have said before he decided that if only the Fed would fall in love with negative interest rates the economy could grow at a rate of 4% or even more.

Other positive signs:
the housing industry has awakened from its long slumber. In December construction of new houses hit its highest level since 2006, and more permits to build new homes were issued than at any time since 2007;
the Fed says the decline in the manufacturing sector, which lost another 12,000 jobs in January, is bottoming out; and
the Fed will keep interest rates low by all standards except those of the President: since last Fall it has been buying up almost all of the new IOUs issued by the Treasury.
Add to all of this the President’s seeming victories on the trade front, which now includes China’s decision to reduce by half its retaliatory tariffs on $75 billion of American imports, a signal that it is standing by the phase one deal even if the coronavirus makes it impossible for it to meet its purchase commitments.

The phase-one deal and the USMCA might not be all that Trump claims, but voters, who have quite sensibly not attempted a close reading of the 34 chapters, 13 annexes and 16 side letters that constitute the USMCA deal, nor of the 96 pages of the phase-one agreement with China, see them as wins for America. Meanwhile, the nation’s trade deficit, Trump’s favored metric despite economists’ challenge to its meaningfulness, shrank by 1.7% last year, the first decline since 2013.

Yes, growth is slowing from its 2.3% rate in 2019, but as David Kelly, chief global strategist for JP Morgan Asset Management puts it, the economic expansion is like a healthy tortoise, “slow but steady”. So Trump is in good shape if it remains true that it is the economy, stupid, and if his defense of the right to bear arms does not include a weapon with which to shoot himself in the foot. There are millions of tweets to go before November.

More of a worry are two black swans, circling vulture-like in the sky. One is Boeing, which now faces demands from European regulators that the electrical wiring of its 737 Max be relocated. That would delay the 737’s return to service by months, and force upward revisions in forecasts that Boeing’s travails will knock about 0.5% off first quarter GDP.

The other is the coronavirus, the impact of which is being under-estimated I am told by people I trust. China’s growth might well slow from a reported 6% to 2%, dragging down demand for oil and other commodities, and major supply chains would be disrupted. Goldman Sachs is predicting the virus will cause a 0.4% reduction in US first quarter GDP. It might be larger if China is unable to meet the purchase commitments it made to Trump, as top Trump economist Larry Kudlow says is likely.

If those two swans combine to cut first quarter growth by about a full percentage point, Trump will find himself presiding over a sluggish economy come November. And if Trump’s 12-member “Coronavirus Task Force” cannot contain the spread of the disease, Trump will be blamed by frightened voters for the contagion. It would be difficult for a President who takes credit for all good news, and who is chairing the Task Force, to pass any blame to others. Voters just might decide that the President’s chaotic administration should be replaced by the smoothly functioning machine that Mike Bloomberg can create, or that the entire system should be revamped to conform to Bernie Sanders’ vision of a future that he believes works.