With Rick Newman, Senior Columnist at Yahoo! Finance
Rick Newman, Senior Columnist at Yahoo Finance, offers thoughts on a variety of topics.
Grading The President On The Economy
Referencing his Yahoo Finance Trumponomics Report Card which measured and graded the U.S. economy under the administration of President Donald Trump, Rick stated that a U.S. president did hold some influence over the economy but still bowed to the Federal Reserve. While the economy does its own thing—influenced and driven by many factors—the president ultimately gets the blame or the credit for how the economy is doing. Taking this into account, the state of the economy will probably determine who wins the 2020 presidential election. Rick also pointed to President Trump’s slightly higher influences on the economy compared to his predecessors, notably the 2017 tax cuts and trade policies.
Ranking And What’s Next
In a comparison with President Trump and the six previous presidents, Trump currently ranks fourth in terms of stock-market performance. The December 2018 jobs report was strong, the 312,000 additional jobs offering reassurance to investors concerned with the stock market dip that same month. U.S. manufacturing was at record highs, surprising because of the shift away from manufacturing and service. Using that data, President Trump ranks second out of seven. On exports with tariffs, however, the president ranks second out of the last four presidents due to the data only going back to the 1990s.
The president also ranks third out of seven on GDP per capita, reflecting GDP growth that was picked up in the last year. Rick added that some of the growth was related to the definitive stimulus effect from the tax cuts and from an increase in government spending, which would not last. President Trump could be facing the slowing of economic growth in 2019 and 2020, which could impact his 2020 reelection chances.
Overall, Rick graded President Trump a “B” for 2018, down from the “A“ the president had in 2017. So far, the economy has been good under President Trump; people are going back to work and employers are creating jobs. The date also provides a baseline so Rick and his associates at Yahoo Finance can provide a clearer comparison of the previous two years against whatever happens in the next two years.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: I’m happy to welcome my next guest, Rick Newman. He’s the senior columnist at Yahoo Finance. He’s been on our show many times and is always a great person to interview. You should read his column as often as you can. It’s quite wonderful. Rick, welcome back.
Rick Newman: Thanks for having me, Steve.
Steve Pomeranz: You know, I want to talk a little bit about this politics notwithstanding and your hate or love of a president aside, there are objective statistics we can look at to grade a president on how well he’s doing regarding the economy. Do you agree?
Rick Newman: Yes, I agree so much that at the beginning of the Trump presidency, I set up something called the Yahoo Finance Trumponomics Report Card that just measures the economy on a monthly basis, and assigns a grade to the Trump economy. Just as a way of letting everybody know how he’s doing, and how the economy’s doing under his watch.
Steve Pomeranz: Fine, but I do have a basic question and that is how much control over this vast economy and this world economy does a president really have?
Rick Newman: That is the question to ask and I get in this argument every time I tried out the Yahoo Finance Trumponomics Report Card. And the answer is the President has some influence over the economy, but the Federal Reserve, the money institutions is more powerful. And the economy just does what it does. I mean we all know that the economy goes through cycles that are influenced and driven by many, many factors.
It’s very hard to predict. I mean if we understood this perfectly then economists would be able to tell us when the next recession is coming or maybe even prevent the next recession and they can’t. So there are all kinds of things going on in the economy kind of like the weather. However, I contend that the president, whoever he or she happens to be, ultimately, gets the blame or the credit for how the economy is doing. And for that reason, I think it’s just very important to follow on an ongoing basis because, just as it has in many elections before, the state of the economy will probably determine who wins the presidency in the next election in 2020.
Steve Pomeranz: Yeah, so it’s the old saw about, it’s the economy, stupid. Right.
Rick Newman: It still is.
Steve Pomeranz: Yeah. Okay, so the idea basically is though, although really the chief executive doesn’t really have any control or very, very little control over this vast engine of an economy, depending on where they are in the cycle and how lucky or unlucky they may be, if they come in when the economy’s good and then it starts to turn south, they get the blame. The economy is bad or growing like it was with Obama, and it accelerates or it continues to accelerate, then the current president can look pretty good. If that should turn, then the President’s going to be blamed either way.
Rick Newman: Exactly right.
Steve Pomeranz: Okay.
Rick Newman: Yeah, interestingly Trump did come, I mean, by the way, Trump has actually done a couple of things that are directly influencing the economy a little bit more than some of his Presidential predecessors, the tax cuts, for example.
Steve Pomeranz: Yeah, that’s a big one.
Rick Newman: Affected growth for sure, pushed growth up in 2018. There is some concern, however, that there might be a corresponding pullback and growth once that stimulus wears off in 2019 and 2020. And then also his trade policy. I mean this is, I don’t think it’s a huge factor in the economy. It’s a little bit more of a factor in the stock market, which is not the same thing as the real economy. But those are two ways in which I think Trump is having, his policies are having a direct effect on the economy.
Steve Pomeranz: Okay, well, you measure a certain number of things, let me pull them up. You look at total employment, manufacturing employment, average hourly earnings, exports, the stock market as measured by the S&P 500, and real GDP per capita. So let’s take a look. Let’s start with the stock market. In December. the market, the S&P declined by 9.2%, which I think took its toll on investor’s mental health. But did it really change the President’s rating?
Rick Newman: Yes, it did. And just to point out, I developed this methodology with a lot of help from economists at Moody’s Analytics, who provide all the data for us on an ongoing basis. And the way we’re doing this is we’re comparing those six factors you just mentioned under Trump with the same point in time for six prior presidents going all the way back to Jimmy Carter in the 1970s. So we’re basically comparing the economy under Trump to the economy under prior presidents at the same point in their presidency and that’s how we’re sort of assessing how he’s doing. The stock market was one of the top things under Trump for a while, but it’s not anymore. So out of the seven presidents we’re measuring here, he ranks fourth in terms of stock market performance up to this point in his presidency.
Steve Pomeranz: Mm-hm.
Rick Newman: So he used to rank sixth. I mean we know the economy was on kind of a tear-
Steve Pomeranz: Yeah.
Rick Newman: In 2017, it actually went through a pullback in 2018, in that big slump in December with the market down. I think it was down 9% in December alone, that knocked the grade that we give Trump down from a B+ in December to a B in January, and that grade is determined purely by the numbers, there’s no subjectivity in that.
Steve Pomeranz: Let’s take a look at wage and employment. So the last jobs report was remarkably strong, adding 312,000 jobs in December. Now there was a stronger job growth at some point in Jimmy Carter’s first term and also Bill Clinton’s. But to bring us back to question of presidential influence, is this something? Well, I guess you answered that question in the sense that it doesn’t really matter if they caused it. They’re just going to get credit for it. So just how important was this jobs report to the overall economy?
Rick Newman: You know, one thing that was important about it was it was a real timely reassurance and a reminder that the underlying economy is still doing quite well because this came at the time, as we just mentioned, when stocks were really swooning.
Steve Pomeranz: Yeah.
Rick Newman: So this big stock market dip that happened in December when the stock market goes down by a little it doesn’t really freak out most people. I mean, obviously, there’s an investor class that pays attention to this. Ordinary Americans not so much. I think it got to the point where the stock market was looking so shaky in December that it was getting the attention.
Steve Pomeranz: Yeah.
Rick Newman: Of ordinary people. And the way I know that is when the cable networks that don’t normally focus much on stock markets start asking me and my colleagues at Yahoo Finance to come on and explain what the heck’s going on. And we were getting requests like what about my 401K. But the jobs report came along.
I mean economists, many economists, didn’t even think we could see that much job creation this late in a business expansion. 312,000 new jobs average for the last two years. There’s been around 190,000 to 200,000. That, in itself, is a very good pace of job growth. And this latest number just blew that out of the water, so it was nice to have that reassurance that things are still going well in the labor economy.
Steve Pomeranz: Wages grew as well by an average of 3.2%, that’s the most since 2009, that’s pretty significant.
Rick Newman: It is relatively speaking, but if you ask anybody how it’s cited they’re going to get about their pay going up 3% when inflation is 2%.
Steve Pomeranz: Mm-hm.
Rick Newman: That’s not great and that is a, that is really a long-term problem when the economy is good. Wages have been pretty stagnant and only in the last couple of years have we really seen any movement on that.
Steve Pomeranz: What about manufacturing? How does that fit in?
Rick Newman: Trump has actually been doing really well in this category. And we chose manufacturing employment because he’s made such a big deal out of manufacturing and the manufacturing economy. You know, bring back the steelworker jobs, and the coal jobs, and things like that. That has actually happened, believe it or not. I don’t think it has happened because of Trump’s policies. I think it has happened simply because people are wrong when they say we don’t make anything in the United States anymore.
We make a lot of stuff in United States. And manufacturing output is actually at record highs. So we make more stuff in the United States than ever before. We make it with fewer people than we used to, but that part of the economy actually looks really good right now. And that’s surprising because of the shift we’ve seen away from manufacturing and service. So we’re comparing the number of manufacturing jobs created under Trump to the same thing under presidents going way back when manufacturing was a bigger part of the economy, and he ranks second out of the seven presidents in jobs created in the manufacturing sector, that’s very good
Steve Pomeranz: Okay, what about exports with tariffs and the like, how does he rate there?
Rick Newman: Yeah, he doesn’t rate so well on this one. Now on this, we only have data going back to the early 1990s. We don’t have it going back to the 1970s like we do for the other categories, so we can only compare him to three other presidents. But he ranks two out of four. That’s a low ranking and I’m not sure that has anything to do with his trade policy, I think that has a lot to do with the dollar that’s been strengthening.
Steve Pomeranz: Yeah.
Rick Newman: But again, the reason we put exports in here as a category is that it represents something that Trump has stated is very important to him, which is improving the overall trade deficit the United States has. In other words, the gap between the amount of stuff we buy from foreigners and the amount they buy from us. And exports is half of that equation. So far, not so great on exports.
Steve Pomeranz: My guest is Rick Newman, senior columnist at Yahoo Finance. So what about the, we talked about the stock market, what about real GDP per capita? First of all, quickly explain what that means.
Rick Newman: GDP is just total output of the economy, and in order to measure that across time in a meaningful way, A, you have to do it on a per capita basis because just given population growth, you would expect the GDP is always going to be higher from year to year. So when we measure GDP per capita—and that’s real GDP, so that’s adjusted for inflation as well—Trump’s doing okay. He ranks fifth out of the seven, excuse me, third, he ranks third out of seven presidents, which is pretty good. That reflects GDP growth that has picked up in the last year.
Steve Pomeranz: Mm-hm.
Rick Newman: Now, I think the problem with this is that some of that was related to what we know was a definitive stimulus effect from the tax cuts and from an increase in government spending, and that’s not going to last. So part of the challenge Trump faces is we could see slowing economic growth in 2019 and 2020, just as he is going for reelection in 2020.
Steve Pomeranz: So his grade has gone from an A-minus back in 2017 to a B. So that’s really two movements, right?
Rick Newman: Yep.
Steve Pomeranz: That’s because A-minus to B+, and then to B, correct?
Rick Newman: Yeah, that’s right, and it hasn’t been a straight-line change, it has gone up and down a little bit. But I mean it has moved in a very narrow range. So in other words, it hasn’t changed much. So far the economy has been good under Trump and this kind of reflects what I think we know. I mean the stock market, on the whole, is up during Trump’s administration. It was up more in his first year than in his second, but it’s still up overall. People are going back to work. Employers are creating jobs. In fact, we have jobs. We may have worker shortages in some parts of the economy.
Steve Pomeranz: I’ve heard that.
Rick Newman: So that tells you where Trump is almost halfway through his term. And what we wanted to do with this was get this baseline started so that we can have a much clearer idea during his third and fourth year when it’s really going to matter for his re-election odds. So we’ll be able to compare how he does in the third and fourth year to how he did in his first and second year.
Steve Pomeranz: Wow! Wow, we’ll definitely have you back to talk about it. Thank you so much.
Rick Newman: Welcome to come.
Steve Pomeranz: Rick Newman, senior columnist at Yahoo Finance. And if you have a question about what we’ve just discussed or an opinion or got a money issue on your mind don’t forget to join our conversation and contact us through our website, which is stevepomeranz.com. We also podcast, as well. And while you’re there, sign up for our weekly update for a rundown of the important topics we’ve covered that week. Weekend-long history of past segments and commentaries and the update goes straight to your inbox every single week. We’d love to hear from you. Visit us at stevepomeranz.com. Thanks again, Rick.
Rick Newman: Thanks for having me, Steve.