It's Not the Economy, Stupid
People are feeling better about the economy and there is an incumbent president in the race for 2020. It’s just our nature to feel good about a president when the economy is good, but is that a fact-based approach? While presidents often receive the blame or credit, economists believe that the availability of capital and labor and technological advancement drive our economy. The two most important measures of our economic state are the number of jobs being created and the resulting unemployment rate. The following charts tell the true economic story of our country.
We had started to see fewer jobs created as we got nearer the great recession which began in 2008. Then in 2008 and 2009 we lost millions of jobs as companies and government reacted to the downturn by cutting jobs and sending millions of Americans to the unemployment rolls. In 2010 the jobs began to increase again. Since 2011 and now the job growth has begun to normalize in a range of 2.2 to 2.7 million annually. Three presidents served during this time period. Economists have not chosen to blame the Bush administration for the recession, nor have they given the Obama administration credit for the recovery and they certainly don’t see abnormal growth since the Trump administration took over either.
The other key indicator is the national unemployment rate. That is, the number of Americans who are collecting unemployment benefits divided by the number of Americans in the work force. The steady job growth since 2011 has driven down the rate, but additional jobs are becoming available as boomers begin to retire in large numbers. The social security administration reports that 10,000 boomers a day reach 65. So, the unemployment rate must drop as workers take the new jobs.
So, if presidents don’t define our economy’s success, what does? To answer this question, I studied all statistically significant changes in annual Gross Domestic Product during the fifty-seven year period from 1962 until now. Often our success has been fueled by new business opportunities provided by technology advances as happened between 1994 and 2000. Between 1962 and 1966 economists credit our expansion to government investment in space exploration and social engineering. During the period between 2010 and 2017 the Federal Reserve (FRED) reports our world trade exports almost doubled from 1.278 trillion dollars to 2.5 trillion dollars. It is also true that tax cuts can drive a certain sector’s economic growth as when automotive and housing grew between 83 and 89. Similarly, I found that economic reversals occurred when the business conditions decline as with the dot com bubble break in 2001 and the housing bubble crash in 2007. Clearly our GDP follows business cycles.
During the 1980 campaign, Ronald Reagan asked “are you better off than you were 4 years ago?’ Clinton’s campaign strategist James Carville said, “It’s the economy, stupid.” Both implied that they would make people’s situation better even before being elected. Now the current president points to the low unemployment and stock market success as his re-election ticket. It seems more likely that events like the convergence of rising oil prices and the capital investment needed in the oil and gas sector are a better bet than any presidential candidate.