The Trump economy is off to a strong start.
Since the spring, growth in gross domestic product has averaged about 3% — much stronger than either during the Bush or Obama presidencies.
This winter, consumers are likely to pull back again to pay off credit-card balances accumulated during the holiday shopping season. After that, confidence buoyed by a stronger job market and optimism lifted by more robust exports and stock prices should propel household and business spending and GDP growth into the 3% range again.
Overall, the annual growth trajectory has risen to an average of 2.5% to 2.7%, and taken on new, healthier characteristics.
The Obama expansion depended heavily on subsidies to boost employment in health care, a bailout for the auto industry, and huge investments in the oil and gas sector instigated by enhanced recovery methods.
Limits on Washington’s financial resources will compel a tighter rein on health-care spending and hiring. Quite apart from ending the individual mandate, look for Republicans to further tweak Obamacare and reimbursements.
Having replaced vehicles that grew old during the Great Recession and successfully shifted drivers to more durable and fuel-efficient SUVs, auto makers’ annual sales have flattened. To stay relevant to growth, Detroit must roll out more electric vehicles and advanced computer-assisted drive features — and become less hidebound as competition emerges from well-funded Chinese startups.
The recovery in oil prices revived drilling but petroleum investment is not growing at the pace experienced during the boom years. The earlier swoon in prices and impatience among investors compelled producers to learn to extract oil more efficiently. And much of the infrastructure that supports an expanded oil and gas sector was put in place earlier in the decade.
The president’s recent decision to free up leasing offshore will take several years to implement and faces an uncertain future if the Republican Party fails to hold control of Congress in 2018 and the presidency in 2020.
Stepping up to lead growth will be the old reliable — new home construction — as older millennials between 28 and 38 migrate to the suburbs and smaller cities. High big-city rents, lower gas prices and more durable motor vehicles are making the suburbs attractive again.
Millennials who have established decent careers will have more bedrooms and less need to pay the private-school tuition too often compelled by raising children in big cities. Look for the middle-class birth rate to tick up, and nothing creates demand for everything from strollers to smartphones like more babies.
Artificial intelligence has been with us since at least the 1980s — remember Word Perfect and Lotus 1-2-3? Those took automation from the factory floor into offices by easing repetitive tasks that adhere to well defined rules—for example, typing, drafting real estate contracts, and bookkeeping.
The technologies that drove the last two decades—the internet, home wireless applications and smartphones—largely made lives easier but work not much more efficient. The Bush and Obama recoveries not only generated many fewer jobs but also fewer improvements in productivity than was the norm during the post-World II decades of the 20th century.
Now the programming behind apps on handheld devices is about to make jobs requiring considerably more judgement and make creativity more automatable and productive. For example, adjusting insurance claims, diagnosing illnesses, exploiting changing patterns in consumer preferences and robotics to design more appealing and less costly goods and services, and resolving tax disputes.
With more internationally competitive business taxes and a lighter touch in government regulation, productivity—and the possibilities for wage gains among those who upgrade skills—are about to jump to warp speed. Those will resurrect America’s export prowess if Washington negotiates smart trade agreements with genuinely reciprocal access into foreign markets.
Similar to the Bush and Obama years, America has seen periods of lethargy before—the early decades after the Revolution, the mid-1870 to early 1890s and the Great Depression—but each time new technologies and entrepreneurship rescued the economy.
The old magic is back!
Peter Morici is an economist and business professor at the University of Maryland, and a national columnist. He tweets @pmorici1
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