Too bad that Trump is starting to stir up a hornets’ nest over trade. That man just doesn’t know when to stop.
He seems to have a compulsive tendency to snatch defeat from the jaws of victory. He could have done a couple of victory laps on getting Congress to enact a major tax reform plan that slashes tax rates for corporations and lots of individual taxpayers.
The economy is booming and was likely to continue to do so through the mid-term elections, which might have allowed the Republicans to hang onto their majorities in the House and the Senate. Yet he is risking all that by pandering to protectionists.
There really aren’t that many of them to pander to, so perhaps he is pandering to his own protectionist instincts.
When it comes to economic growth, we have nothing to fear other than Trump’s misguided instincts. Trade wars aren’t easy to win, as he recently tweeted. There are never any winners, in fact; everybody loses trade wars.
Now consider all the good news about the US economy:
(1) Labor market is tight. Last week, initial unemployment claims fell to 210,000, the lowest since December 1969 (Fig. 3).
(2) Consumer confidence is buoyant. Debbie and I average the monthly Consumer Sentiment Index and the Consumer Confidence Index (CCI) to derive the Consumer Optimism Index. This average rose during February to the highest reading since November 2000, led by the current conditions component, which was the highest since January 2001 (Fig. 4).
According to the CCI survey, the percentage of respondents saying jobs are plentiful rose to 39.4%, the highest since April 2001 (Fig. 5).
(3) Manufacturing is booming. Also on March 1, February’s M-PMI was reported showing a gain to 60.8, the best reading since May 2004 (Fig. 6). The three-month average of the M-PMI employment index was at one of its highest readings since March 2011 (Fig. 7). Manufacturing employment has increased during every month but one since Trump was elected on November 8, 2016, by a total of 218,000 from November 2016 through January 2018 (Fig. 8). Trump took credit for creating these jobs with his jawboning. Now he could threaten all that with his jaw-dropping support for protectionism.
(4) GDP growth is solid. On March 1, the same day that Trump went rogue on trade, the Atlanta Fed’s GDPNow model estimate for real GDP growth for Q1-2018 was increased to 3.5%, up from 2.6% on February 27. Q1 real consumer spending growth and real private fixed-investment growth increased from 2.0% and 2.7% to 2.9% and 4.4%, respectively.
(5) Global trade is roaring. The global economic boom is showing up in the exports component of the US M-PMI (Fig. 9). It rose to 62.8 in February, the highest since April 2011. The imports component rose to 60.5, the highest since February 2007. These two series are highly correlated, suggesting that US exports depend US imports and vice versa. The sum of the two, which is probably a good proxy for global trade, rose to the highest reading in the history of the series, going back to October 1989 (Fig. 10). Trump should face powerful forces challenging his recent protectionist thrusts.
Dr. Ed Yardeni is the President of Yardeni Research, Inc., a provider of independent global investment strategy research.
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