The Trump bump is real. President Trump has been a godsend for the U.S. economy. Measures of consumer and business confidence skyrocketed following his election victory—largely because of him promising tax cuts and regulatory rollback.
Since Trump took office in January, stock markets have hit new highs. The S&P 500 stands at a record-breaking 2,468. The Nasdaq Composite is at 6,333, more than 1,000 points ahead of where it was 12 months ago.
The jobs market looks strong, too. The economy gained 209,000 net jobs in July, beating expectations by roughly 25,000. What’s more, the net jobs gain for June was revised upward to 231,000.
The unemployment rate stands at 4.3%, the lowest since before the financial crisis. 153.5 million Americans are now in work. That’s 60.2% of the working-age population.
Annual GDP growth was 2.6% in Q2, and most economists expect even faster growth in Q3.
What Needs to Happen for the Trump Bump to Continue
Politics and preferences aside, the U.S. economy is stronger than at any time in recent memory. The stock market boom and strong overall economic growth can’t be ignored. However, some things need to happen in order for the Trump bump to continue moving forward.
First of all, wage growth needs to pick up. As of early August, average wages had risen by 2.5% from one year earlier. That’s not bad, but it’s also not particularly good. Most economists agree that wage increases need to keep up with rising asset prices (fancy talk for stock and bond prices) in order for economic growth to be sustainable.
If wages don’t keep up, household incomes stagnate, and eventually the stock market comes crashing back to Earth.
Reform is Important
There’s also the issue of consumer and business confidence. Since Trump’s election, strong stock market performance has been caused by investors expecting lower taxes and fewer burdensome regulations.
On the regulation side, President Trump has done pretty well, signing a number of executive orders to cut red tape and make life easier for businesses and the workers they employ. However, tax reform is another story.
Both the president and the Republicans in Congress are committed to serious tax reform. They don’t all agree on the details, but the main thrust is clear: Fewer income tax brackets, lower income and corporate tax rates, and fewer loopholes.
Tax reform was set aside to make room for the debate over health care. Serious tax talks haven’t started yet, but the White House hopes to get a major bill passed by the end of the year.
In order for the Trump bump to keep moving forward, talk of lower taxes needs to become a reality. Otherwise, that consumer and business confidence we talked about will fade.
We’re already seeing that happen. According to the University of Michigan’s Index of Consumer Sentiment, consumer confidence has slowly trended downward since shooting up after the election.
The Verdict
There’s no denying that the Trump administration has been good for the U.S. economy. However, the euphoria of a pro-business president has started to wear off. Employment data has been strong, but wage and productivity growth are lagging behind the stock market boom. What’s more, it looks like GDP growth will fall short of the president’s goal of 3% for the year.
In order to prove to businesses and households that the economic environment really is improving, President Trump and the Republicans in Congress need to make good on the promise of tax reform. That would send a strong and positive message. Perhaps strong enough to keep the Trump bump going at an even faster pace.