The Economy Under Trump: What to Expect?

ESI Principal and President Richard Voith recently gave a presentation for Manko Gold Katcher & Fox, an Environment and Energy Law Practice, outlining the impact President Trump’s administration will have on the economy, specifically in Philadelphia. Here are his key takeaways.

With the Trump administration, we have entered a time of acute uncertainty.  According to Bloomberg, the use of the word “uncertainty” is at record highs.

Uncertainty Bloomberg

Whenever there is a change of administration, there is uncertainty—policies change and people in power change. Despite the high degree of uncertainty, however, equity markets have reached record levels since the election.

S&P 500

The run up in equity values is variously described as the result of unleashing the “animal spirits” based on optimism that President Trump will “make us great again,” or more rationally that proposed reform of the corporate income tax will significantly enhance profits and hence stock prices.  Note, however, that the recent run up in stocks is more of a continuing trend that has been in place for 7 years.

But the new political reality has introduced an entirely new source of uncertainty—the very idea that there are facts and alternative facts—which has transformed the nature of political discourse.  The ability to form homogeneous tribes that make their decisions based on their own sets of alternative facts has resulted in fundamental differences in understanding across communities that are unprecedented in my lifetime.

Repetition is often self-justifying, and alternative realities are efficiently created through voluntary attachment to groups reinforcing beliefs, this process is increasingly being manipulated through differential access to information and systematic attempts to alter data.  But there is a reality that matters.  Your cell phone works because evidence-based scientists and engineers discovered, with great human and financial capital investment, how to create a cell phone system, and an evidence-based economic and financial system delivered the resources necessary to offer an essential technology that consumers everywhere value.

Where is this all leading us?  Making forecasts today is challenging, and in my years as a Federal Reserve Bank Economist, I learned that you can always make a forecast – GDP will grow 5 percent for example – just as long as you don’t say when, the rule of thumb being to give a number or a date but not both.  Not being tied to the FED anymore should make me more willing to make forecasts, and even more so that there is apparently now the option of presenting alternative numbers and alternative dates.

On a more serious note, I will not mince words.  Basing economic policy on perception rather than evidence will result in poor outcomes for the economy.

The way one makes projections is to evaluate where you have been, look at where you are, determine likely future changes in the environment, make predictions based on historical data and data from informed assessments of likely changes in the future environment.  In the recent public discourse there has been so much noise that many don’t understand where we are, let alone where we have been or where we are going.  More disturbingly, some have called into question the basic economic data that have guided decision makers for well over half a century.

Conventional statistics—are they rigged?  My experience working with economists –hundreds of them—and with the labor department tells me one thing, that it is simply not possible to “cook the numbers”.  If you knew the people involved, you’d know that they are no more psychologically able to act conspiratorially than my mother—and she is dead.  That’s why I intend to focus on traditional measures of economic performance—and these actually explain a lot, in a non-alternative way.

Where are We Now: Conventional Facts versus Alternative Facts

Global Population and Global Income

A good place to start is with understanding where the US fits in the world.  Figure 1 shows that although the US is a very small fraction of the world’s population, it generates a very large share of the world’s income.

Global Population & Global Income
Figure 1: Global Population and Income

Unsurprisingly US wages are among the world’s highest and dramatically higher than some of our key trading partners.

Global Relative Wages Adjusted for PPP
Figure 2. Global Wages

Based on the results of the last election, the relative good fortune of the US is not perceived as such by a significant portion of the US population.  There is a serious disconnect between the perceptions of Trump voters and the traditional economic data.  The long-term rise in the stock market over the last seven years is just one example of this disconnect.  The US economy, as reflected in the value of US assets, has been improving significantly over time, not declining.  There are numerous examples of this type of disconnect including perceptions of the labor market, immigration, healthcare, and the state of our cities.

Employment Trends

Employment Trends
Figure 3. The U.S. Labor Market

During the Obama presidency, the US economy has added over 11 million jobs, yet most Trump supporters perceive that job prospects have worsened rather than improved.

Unemployment Rate
Figure 4. The U.S. Unemployment Rate

Consistent with the strong job generation, the unemployment rate, as conventionally measured, has fallen to near full employment numbers.  Alternative measures of unemployment have similarly fallen.


Immigration - Net Migration
Figure 5. Net Migration

Trends show that net migration has been on a steady decrease since 1998, the dwindling rate of net migration was only further catalyzed by the recession of 2008.

Figure 6. Net Migration to the U.S. from Mexico

According to a PEW Research Center’s report named More Mexicans Leaving than Coming to the U.S. published in November 2015, the recession caused a steep and significant decline in immigration from Mexico, so much so that net migration to the U.S. from Mexico has become negative.   Between 2005 and 2010, 20,000 more people left the U.S. for Mexico than the reverse. Between 2009 and 2014, this number increased such that 140,000 more people left the US for Mexico than came from Mexico  These facts show an unarguably stark contrast from the alternative fact-based narrative President Trump often adopts.


Annual Changes in the Millman Medical Index
Figure 7. Annual Changes in the Milliman Medical Index

Health care costs are cited as having been rapidly rising for many years and being out of control. Yet, the data and statistical analysis shows the rate of increase of heath care costs have been on a downward trend for the past 15 years.

State of Philadelphia

State of Cities - Philadelphia Murders
Figure 7. State of Philadelphia – Philadelphia Murders

On Thursday January 26, 2017 the Congressional Republicans held their annual policy retreat in Center City Philadelphia, during which, President Trump was quoted in the media saying, “Here in Philadelphia murder has been steady – I mean – just terribly increasing.” Yet, statistics show that over the past decade homicide rates acutely decreased from 391 in 2007 to 277. Philadelphia Mayor Jim Kenney responded to President Trump’s statements deeming them “fake facts.” The discrepancies of what is said to the nation versus what is statistically proven to be true can cause friction between the local and federal government levels, which can impede on the progress of various local, state, and national agendas.

State of Cities - Philadelphia Investment
Figure 8. State of Philadelphia – Residential Building Permits

Philadelphia experienced an overall residential boom and has been on a consistent upswing since the 2008 recession and even though residential building permits issued in Philadelphia decreased somewhat in 2015 compared to the previous year, residential investment remains very strong in the city.

State of Cities- Philadelphia Population
Figure 9. State of Philadelphia – Population

The upswing in construction is based on the upswing in population, which has been on the rise since 2010, after decades of sharp decline, as demonstrated in Figure 9.

Labor and Capital

Figure 10. Labor and Capital Shares

These disconnects have led to a number of policy prescriptions that are likely to weaken the US economy including strict immigration controls and diversion of resources to limit immigration, imposition of tariffs and withdrawal from international trade agreements, scrapping of the Affordable Care Act, and “Get Tough on Crime” which will reallocate resources from productive activities to incarceration.  (There are some policies that are likely to improve the US economy including corporate tax reform and more efficient regulation, both of these efforts need to be based on careful analysis to assure that they deliver benefits overall.)

Despite the disconnect between actual data and perceptions, there are fundamental reasons for the discontent in the country.  Well-being is not evenly distributed geographically with the coasts doing very well and the heartland less well.  Perhaps more importantly, however, is the long-term down trend in labor’s share of income which declined steeply from 2000-2012 (recovering somewhat in 2013-2016.)

Unfortunately, none of the policies currently being pursued are likely to put a dent in labor’s historically low share of national income.

The full presentation is available below.



Richard Voith is a President and Principal at Econsult Solutions, and is the current Chair of the Delaware Valley Chapter of the Counselors of Real Estate. He is a well-known expert in transportation and applied economics. He is also a board member of PENTRANS and Philadelphia Youth Basketball.

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