Why the Economic Slowdown?

Keeping perspective on the third quarter's less-than-stellar GDP numbers.

Nate Jackson · Oct. 31, 2019

The economy may be slowing a bit, according to the latest GDP numbers showing growth of just 1.9% in the third quarter. Yesterday’s White House announcement says it’s good news, though notably without using the number 1.9: “The current economic expansion, which began roughly a decade ago, became the longest in U.S. history on July 1, 2019, beating the previous record that lasted from March 1991 through March 2001. As today’s advance Gross Domestic Product (GDP) release confirms, economic growth continued in the third quarter of 2019, beating market expectations and adding to the expansion’s record length. The release also confirms that the Trump Administration’s policies support sustained economic growth and lead to higher incomes for American families. … Furthermore, under President Obama’s expansion period, real GDP grew at only a 2.2 percent annual rate compared to the Trump Administration’s 2.6 percent rate.”

There’s a lot to unpack in that statement. While it’s important to note that no president truly controls the economy or is solely responsible for its growth or stagnation, Barack Obama oversaw the slowest recovery in history. It was slow because of his Big Government “stimulus” and massive regulation, all of which very nearly brought another recession in 2015 and 2016. By the way, the whole reason for the recession that began under George W. Bush was Democrat housing policies put in place a decade prior.

Candidate Trump talked a big game about the economy, and as president he has in many ways delivered. Record-low unemployment and solid wage gains for workers are in part spurred by his significant deregulation and across-the-board tax cuts, as is GDP that finally reached 3% for the first time in a decade.

So, why the lackluster GDP growth lately? For one thing, full employment is great for workers, but it’s harder to grow a business when there aren’t many workers to add and retaining the ones you have costs more money. (Tomorrow’s unemployment report will reveal more.)

And then there’s the elephant in the room. As National Review notes, “The lackluster numbers come amid concerns that the economy is slowing down as trade battles with China and other countries continue to burden American companies and consumers.”

The Wall Street Journal also blames the slowdown on Trump’s tariffs. “The strong evidence is that trade policy is the main growth culprit. U.S. manufacturing has slumped, which is related to slowing exports. Slower growth in China from the trade war has reduced the exports of U.S. farm, industrial and construction equipment,” says the Journal. (Manufacturing is now the smallest share of the economy in 72 years.) “A study by Federal Reserve economists this year looked at two waves of trade policy ‘shock,’ first in 2018 and then in the first half of 2019, and estimated the impact reduced GDP growth by about one percentage point.”

While not arguing for Trump’s tariffs, we have endeavored to explain his strategy in a trade war that he did not start. In short, he’s using a strong economy as leverage to correct a lot of long-term trade abuse by other nations, and we think Rust Belt voters are among those who are grateful that someone is finally fighting for the U.S. instead of for the globalists. Whether Trump’s strategy pays off is yet to be determined.

Are there economic warning signs? Yes, but caveat emptor: Democrats and the Leftmedia would love to undermine consumer confidence by playing up those signs. Maintaining perspective is incredibly important.

Update 11/1: According to The Wall Street Journal, “The economy added 128,000 jobs in October, the Labor Department reported Friday. Job creation in September and August was revised up by a net 95,000. The jobless rate ticked up to 3.6% last month from 3.5% in September. The prior month’s reading was the lowest rate since December 1969.”

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