PRESIDENT TRUMP The First 100 Days and the U.S. Economy

Transcription

1 PRESIDENT TRUMP The First 100 Days and the U.S. Economy MBAFCPA.COM June 2017

2 INTRODUCTION During his campaign and after the election President Trump has mentioned the importance of what he would accomplish during his first 100 days in office. This paper looks at several sectors of the economy during President Trump s first 100 days in office as compared to the prior five quarters. While this is early in his term, this is a snapshot and barometer at this point in time in the U.S. economy. It should also be noted that some data during the first quarter of 2017 are a direct result of the Trump administration while some are a carryover to the Obama administration. Disclaimer: This is not a pro or con assessment of the Trump administration. The data and information are not intended to lean in favor of one party or the other. It is intended to report the facts and results of the first 100 days. GDP The US economy grew at an annualized 1.2 percent in the first quarter of 2017, following a 2.1 percent expansion in the previous quarter. The deceleration in real GDP was mostly a result of weak consumption due to lower auto sales and home-heating bills which offset a pickup in investment in housing and oil drilling and rise in exports. It was only 1/3 of the peak growth rate during the past five quarters of 3.5% in the third quarter of President Trump has stated a goal of exceeding 3% GDP growth going forward on a consistent basis. Time will tell if this is an achievable and realistic growth rate. 1

3 CONSUMER SPENDING Consumer Spending in the United States increased to USD Billion in the first quarter of 2017 from USD Billion in the fourth quarter of This increase of 10 USD Billion is a slower pace than the previous five quarter increases under Obama when consumer spending increased each quarter by 46, 119, 85 and 100 USD Billion. SAVINGS RATE (IN PERCENTAGES) Household Saving Rate in the United States increased to 5.90 percent in March from 5.60 percent in February of Personal Savings in the United States averaged 8.29 percent from 1959 until 2017, reaching an all time high of 17 percent in May of 1975 and a record low of 1.90 percent in July of During Trump s first quarter, the monthly savings rate was 5.66%. Under Obama for the previous five quarters the monthly saving rate averaged 5.48%. 2

4 JOBS Jobs increased by 98 thousand in March of It is the lowest payroll number since May last year as retailers cut jobs while employment went up in professional, business services and mining. Employment in professional and business services rose by 56,000. Mining added 11,000 jobs in March, with most of the gain occurring in support activities for mining (+9,000). Mining employment has risen by 35,000 since reaching a recent low in October Health care gained (+14,000), with job gains in hospitals (+9,000) and outpatient care centers (+5,000). In the first 3 months of this year, health care added an average of 20,000 jobs per month, compared with an average monthly gain of 32,000 in Employment in financial activities continued to trend up in March (+9,000) and has increased by 178,000 over the past 12 months. Construction employment changed little in March (+6,000), following a gain of 59,000 in February. Employment in construction has been trending up since late last summer, largely among specialty trade contractors and in residential building. Retail trade lost 30,000 jobs in March. Employment in general merchandise stores declined by 35,000 in March and has declined by 89,000 since a recent high in October During the first three months of the Trump administration jobs increased an average of 177,000 per month. During the previous five quarters jobs increased an average of 204,000 per month. 3

5 HOUSING STARTS Housing starts in the United States slumped 6.8 percent from the previous month to a seasonally adjusted annualized rate of 1215 thousand in March of 2017, following an upwardly revised 1303 thousand in the previous month and much worse than market expectations of a 3 percent drop. It is the lowest rate in four months, led by drops in the Midwest. During the first three months of the Trump administration housing starts averaged 1,250 thousand per month as compared to 1,161 per month during the previous five quarters. 4

6 EXISTING HOME SALES Sales of previously owned houses in the United States jumped 4.4 percent month-over-month to a seasonally adjusted annual rate of 5710 thousand in March of It is the highest value since February of 2007 due to a 4.3 percent rise in sales of single-family houses (-3.4 percent in February 2017). The average price went up 3.3 percent after being flat in the previous month and the months worth of supply was steady at 3.8 percent. In addition, the number of houses available in the market increased to 1830 thousand from 1730 thousand. During the Trump administration s first three months sales of previously owned homes averaged 5,616 thousand per month as compared to the previous five quarters, which averaged 5,397 thousand per month. NEW HOME SALES Sales of new single-family houses in the United States unexpectedly jumped by 5.8 percent to a seasonally adjusted annual rate of 621 thousand in March 2017 from a downwardly revised 587 thousand in February. The figure came in well above market expectations of 583 thousand to hit the highest level since July 2016, as sales rose mostly in the Northeast region (25.8 percent) and in the West (16.7 percent). During the Trump administration s first three months sales of new homes averaged 596 thousand per month as compared to the previous five quarters, which averaged 551 thousand per month. 5

7 U.S. DEBT TO GDP U.S. debt to GDP in 2016 was 105.8%. The United States recorded a government debt equivalent to percent of the country s Gross Domestic Product in Government Debt to GDP in the United States averaged percent from 1940 until 2016, reaching an all time high of percent in 1946 and a record low of percent in The debt to GDP at the end of Q was percent under the Trump administration. Time will tell if the ratio increases or not under proposed Trump programs. U.S. rank along other countries: z Japan: z Italy: z US: z Spain: z France: z Canada: z UK: z Euro Area: z India: z Brazil: z Germany: z Netherlands: z Mexico: z China: z South Korea: z Australia: z Switzerland: z Turkey: z Indonesia: z Russia:

8 INFLATION Consumer prices in the United States increased 2.4 percent year-on-year in March of 2017, lower than 2.7 percent in February and below market expectations of 2.6 percent. It is the lowest inflation rate in three months due to a slowdown in energy and services cost. On a monthly basis, consumer prices went down 0.3 percent, the first drop in 13 months. Year-on-year, energy prices rose 10.9 percent, lower than 15.2 percent in February. In addition, prices of services less energy rose less (2.9 percent from 3.1 percent) and cost of used cars and trucks fell more (-4.7 percent from -4.3 percent). In contrast, inflation rose for transportation services (3.8 percent from 3.6 percent in February) and food (0.5 percent from a flat reading) and was steady for shelter (3.5 percent) and medical care (3.4 percent). Annual core inflation, which excludes food and energy eased to 2 percent from 2.2 percent in the previous month. It is the lowest core inflation since November of 2015 and below market expectations of 2.3 percent. On a monthly basis, the energy index declined 3.2 percent, with the gasoline index falling 6.2 percent, and other major energy component indexes decreasing as well. In addition, a drop in the index for wireless telephone services also had a downward pressure. The food index rose 0.3 percent, with the index for food at home increasing 0.5 percent, its largest gain since May Excluding food and energy, consumer prices fell 0.1 percent, its first decline since January of The shelter index rose 0.1 percent, and the indexes for motor vehicle insurance, medical care, tobacco, airline fares, and alcoholic beverages also increased in March. These increases were more than offset by declines in several indexes, including those for wireless telephone services, used cars and trucks, new vehicles, and apparel. Overall, inflation continues to climb under Trump as it did under Obama s last six months. Possible Fed actions in the future may impact the rate as time goes on. 7

9 INTEREST RATES The Federal Reserve raised the target range for its federal funds by 25 bps to 0.75 percent to 1 percent during its March 2017 meeting. The decision came in line with market expectations as the labor market strengthened and economic activity continued to expand at a moderate pace, policymakers said. Interest rate forecasts point to another two rate hikes this year, the same as in the December projection. Interest Rate in the United States averaged 5.81 percent from 1971 until 2017, reaching an all time high of 20 percent in March of 1980 and a record low of 0.25 percent in December of 2008 through December The March 2017 increase was the third since the recession. The other two increases were at the end of 2015 and end of Each increase was 25 bps. Rates are expected to continue to climb over the near term, again, due to forecasted Fed actions. CREDIT Consumer credit in the United States increased by $ billion in February of 2017, following an upwardly revised $ billion rise in January and above market expectations of $13.9 billion. Nonrevolving credit (student loans, auto loans, and other loan types that can t be used after paid) went up by $12.29 billion, compared with a $13.5 billion rise in January. Revolving credit (credit cards, lines of crdit, etc.,) increased by $2.917 billion, after falling by $2.636 billion in the previous month. Consumer Credit in the United States averaged 4.69 USD Billion from 1950 until 2017, reaching an all time high of USD Billion in December of 2010 and a record low of USD Billion in June of Consumer Credit for March 2017 is estimated at USD Billion. Levels of Credit are down since the Trump administration took office. 8

10 CONSUMER SENTIMENT The University of Michigan s consumer sentiment for the United States came in at 97 in April 2017 compared with a preliminary reading of 98 but slightly higher than 96.9 in March, a final estimate showed. The gauge of future expectations increased slightly while the barometer for current economic conditions fell. Consumer Confidence in the United States averaged from 1952 until 2017, reaching an all time high of in January of 2000 and a record low of in May of The Consumer Sentiment level rose sharply in December 2016 and January 2017 after President Trump was elected. The level has moderated some since then but remains higher than the Obama administration ratings during the prior five quarters. 9

11 CLOSING The economic impact of the first 100 days of the Trump administration has resulted in mixed reviews across various sectors of the U.S. economy when comparing the first 100 days to the prior five quarters of the Obama administration. GDP is down (0.7 Trump to 1.4 Obama), as are jobs per month (177K Trump to 204K Obama). Housing is close with a slight increase to Trump. GDP to Debt is slightly lower under Trump with an asterisk for the 15 day freeze on debt at the end of March Consumer Credit is better ($14.3 billion/month Trump to $15.9 billion/month for Obama). Consumer Sentiment is up (97.3 Trump to 92.0 Obama) but time and actions will tell as we mover forward out of the honeymoon period. While 100 days is a benchmark for measurement used for a new President for many years, it is still nonetheless a very short period of time for assessing one s impact. Therefore, let s watch closely as this plays out and re-evaluate about six months down the road. Juan Del Busto Juan Del Busto is the former regional executive of The Federal Reserve Bank of Atlanta s Miami branch, current chairman of Del Busto Capital Partners, Inc., and consulting advisor to MBAF. 10

12 Stay a Step Ahead ASSURANCE TAX & ACCOUNTING ADVISORY TECHNOLOGY CONSULTING An independent member of Baker Tilly International 11 MBAFCPA.COM MBAFCPA.COM PRIVATE CLIENT WEALTH