Throughout American history, presidents have written out orders and made policy by quill, by pen, by typewriter, and through email. But President Trump has done an unprecedented amount of governance over Twitter.
Sure, few of his tweets are explicitly phrased as presidential orders. But a new study by Clever Real Estate analyzed three years of Trump’s tweets, and found that his 140-character dispatches were as effective at moving the needle as traditional policy imperatives on presidential letterhead, especially when it came to issues involving the economy or the Federal Reserve. The study also discovered some surprising trends related to targets of the president’s ire.
A Prolific Tweeter
Whether or not Trump tweets about the economy, the study found a statistically significant relationship between the president’s tweets and S&P 500 stock prices. To put it simply, when Trump tweets, stock prices go up.
Lucky for the economy, then, that he tweets a lot. Since November 1, 2016, Trump has tweeted on all but eight open-market days. Most often, he tweets fewer than ten times a day (as he’s done on 429 days since November 1, 2016), and has only exceeded 30 tweets on 7 days. It seems like someone may have tipped him off on the positive economic effects of his tweets; he’s steadily increased the frequency of his tweets, reaching an average of 19 times a day in October 2019.
Trump’s tweets boost the economy no matter what he tweets about. But when he tweets about economic issues, the effects are even more pronounced.
On October 9, 2019, Trump tweeted a record 36 times, plus 11 retweets. On that day, one of Trump’s tweets said that “THE USA IS GREATER THAN EVER BEFORE!” Up to that day, the S&P 500 had been in a protracted slump, closing an average of 7.35 points lower each day for the previous ten days. After Trump’s record-setting day of tweets, the market closed an average of 12.63 points up for the next ten days.
We’ve all heard the phrase “correlation is not causation,” meaning that just because two things happened consecutively doesn’t mean that the first event caused the second. But in this case, there’s a compelling argument that Trump’s positive tweets about the economy might actually spur economic growth. Nobel laureate Robert Shiller came up with the theory of “narrative economics,” which basically says that humans look for narratives in everything, and that once they find one, they’ll tailor their actions to that story. According to this theory, economic catastrophes like the Great Depression and the Great Recession were failures of confidence as much as economic policy, and that negative feelings about the economy can be a self-fulfilling prophecy.
For example, if consumers think a bank is going to go bust, and they all withdraw their money from that bank, they’ll essentially bring about the bankruptcy they feared in the first place. Same with the economy. If the president tweets that the economy’s better than it’s ever been, consumer confidence goes up, people spend their money, and the economy flourishes. It’s almost irrelevant to ask which came first.
Interest Rates Are Affected, Too
Trump’s tweets don’t just goose stock prices. They also lower interest rates. How? In the same way that Trump’s economic optimism boosts stock prices by reassuring skittish investors, they also lower the 10-year Treasury yields. The Treasury yield is essentially the interest the federal government pays on its debts, and in gloomy economic conditions, the government has to entice investors with a higher return. On the other hand, yields drop when confidence in the American economy rises.
How does this benefit consumers? As the 10-year treasury yield drops, so does the interest rate on fixed rate 15-year and 30-year mortgages. Trump tweets, Treasury yields drop, and fixed-rate mortgages become more affordable. But what about adjustable-rate mortgages?
Adjustable-rate mortgages are more closely tied to the Federal funds rate, which is controlled by the Federal Reserve. But Trump’s tweets drive this rate down, too. The mechanism here is more direct: when Trump tweets about the Federal Reserve, he’s often critical of “high interest rates.” The Federal funds rate often falls in the wake of these critical tweets, which then lowers the rate on adjustable-rate mortgages. Clearly, someone at the Federal Reserve is monitoring the president’s Twitter account.
While lower interest rates are good in the near term, keeping them down to boost short-term economic growth could backfire. Over the course of decades, the Federal Reserve was able to bring the country out of the inflationary lull of the 1970s through its power to independently set interest rates. Reducing that independence could lead the country back to malaise, a weakening dollar, and (shudder) stagflation.
Even When He’s Naughty, He’s Nice
Trump’s tweets are mostly positive, and that optimism is surprisingly effective. But occasionally, the president goes negative and criticizes rivals or enemies. What’s surprising here is that while his optimism is quite potent, his negativity is generally ineffective.
In fact, it usually has the opposite of the intended effect. Let’s look at some specific examples:
In a January 3, 2017 tweet, Trump criticized General Motors for bringing cars manufactured in Mexico over the border “tax free,” and selling them at U.S. dealerships.
General Motors’ stock had been on a long decline, and if Trump’s negative tweets were anything like his positive ones, you’d expect their slide to continue after this scolding, if not steepen. Surprisingly, though, their stock rose an impressive 7% in the two days after the tweet.
The New York Times
Before Trump’s election in 2016, the Times’ stock was flat, holding at under $10. Since he took office, that same stock has outpaced the market.
It hasn’t been an uninterrupted climb, though. At the end of 2017, the Times’ stock had entered another decline. On November 17 of that year, Trump posted three tweets about the Times, calling them “naive,” “dumb,” “failing,” “weak,” and “ineffective.” Their stock rose a dollar over the next week, and by mid-February had gone past $25 a share, more than doubling in about a year.
After the retail giant dropped Ivanka Trump’s clothing line in 2017, the president tweeted about them on February 8 of that year, saying his daughter had been “treated so unfairly” by the company.
In keeping with the trends above, Trump’s attack had the counterintuitive effect of boosting Nordstrom’s stock price. After weeks of stagnation, the stock closed 4% higher the day of Trump’s tweet.
Using the Bully Pulpit
Clearly, Trump has one of the most influential Twitter accounts on the planet, and when he uses it for good, he’s amazingly effective. On the other hand, his attacks usually end up helping his rivals rather than hurting them, proving that the old saying is true: there’s no such thing as bad publicity.
In the meantime, Trump has added an unlikely but potent new tool to the economist’s toolbox: social media.
Dr. Francesca Ortegren, Ph.D. is a Research Associate at Clever Real Estate where she focuses on helping people understand complex data, real estate, finances, business, and the economy by researching various topics, analyzing data, and reporting useful insights for general consumption.
© 2022 Newsmax Finance. All rights reserved.