Obama Gifts Trump a Weak U.S. Economy
The outlook for the U.S. economy is not encouraging, despite everything you may have heard. According to the mainstream media, the one thing that outgoing President Barack Obama left for incoming President Donald Trump was a strong economy. In the fourth quarter of 2008, gross domestic product (GDP) contracted at an annual rate of 6.3%. In the third quarter of 2016, the U.S. economy grew 3.5%.
In January 2009, the month Obama was sworn into office, the unemployment rate was 7.8%. In December 2016, Obama’s last month as president, the unemployment rate was near a nine-year low of 4.7%.
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So it’s going to be difficult for Donald Trump to revive the U.S. economy when everything is rosy. But, based on the latest economic data, it’s quite possible that Trump has not been gifted a rock-solid U.S. economy after all.
U.S. real GDP slowed in the fourth quarter of 2016 to an annualized rate of 1.9%. The disappointing advance estimate was far lower than the 2.2% that economists were forecasting. Fourth quarter GDP was also down considerably from the 3.5% rate in the third quarter. (Source: “National Income and Product Accounts Gross Domestic Product: Fourth Quarter and Annual 2016 (Advance Estimate),” Bureau of Economic Analysis, January 27, 2017.)
During the fourth quarter, exports plunged at a 4.3% rate. This reverses the 10% increase in the third quarter. The fourth quarter drop in exports was also the biggest since the first quarter of 2015.
Why the massive deceleration? Demand for U.S. soybeans cratered in the fourth quarter, which weighed down exports. This can’t have come as a total surprise.
Back in November, I noted how third quarter exports were responsible for 1.17% of the third quarter advance. But the main driver of that growth was soybeans, which were responsible for 0.9% of third quarter GDP growth. Actually, if you remove soybean exports, inventory build, and contributions from Obamacare, the U.S. economy grew by just 0.9% in the third quarter.
Regardless, at the time, everyone wanted U.S. soybeans because Argentina and Brazil, the world’s largest soybean exporters, had experienced poor harvests. Anyone could see that the demand for soybeans was going to be, for the most part, a one-time event. Harvests rebound after all. And when they do, demand for soybeans from the U.S. will plummet.
And it did; the lower demand was reflected in the fourth quarter GDP numbers. And those numbers do not reflect a U.S. economy in recovery mode.
Full-Year GDP Underwhelms Too
In 2016, the U.S. economy grew just 1.6%. By comparison, in 2015, the U.S. economy advanced 2.6%. That’s much better, but still not that great for the world’s biggest economy; one which the U.S. Federal Reserve threw trillions of dollars at to bolster.
To put these GDP figures into perspective, fourth quarter U.S. GDP slowed considerably, and annual growth of 1.6% was the weakest annual performance since 2011. It’s also the 11th straight year that the country’s GDP failed to reach three percent. The last time U.S. GDP breached three percent growth was in 2005. The historical average is 3.3%.
Adding it up, the average annual GDP growth during President Obama’s reign was a paltry 1.48%. This represents the weakest growth cycle of any expansion since 1949. Moreover, President Obama is the only U.S. president to have never had one, single, solitary year of three-percent GDP growth.
Did President Trump really inherit a strong U.S. economy? It doesn’t look like it. What will Trump do to reverse this trend? That’s still open for debate. The new president hasn’t really offered much on his economic policy, although his trade policy is coming into focus.
Most Americans do not seem to mind though; consumer and business confidence is up, and the U.S. stock market is in record-high territory.
Eventually, the U.S. economy will need to be backed up by strong, sustainable economic data for the euphoria to continue.
