On Inauguration Day, the Trump White House declared 4% as its benchmark for the nation’s economic growth.
“To get the economy back on track, President Trump has outlined a bold plan to create 25 million new American jobs in the next decade and return to 4% annual economic growth,” the White House said in one of its first postings on its website. The posting went on to say that Trump will “unleash economic growth and help Make America Great again.”
Well, I am taking a wait-and-see approach. And here’s a chart that shows you why…
The chart below reports economic growth by decade going all the way back to the 1790s. You can see for yourself that we haven’t had real GDP growth exceeding 4% since the 1960s. And while we’re obviously not finished with the decade beginning in 2010, we’re currently stumbling along at a clip of only about 2% to 2.5%.
And that was well before we began accumulating the massive government-debt that we now face.
In fact, the debt-to-GDP ratio in the U.S. currently exceeds 100 percent. And that’s before Trump’s aggressive, new, government-backed infrastructure spending programs, which are the one element in his four-pronged economic program that could provide the most immediate boost to the economy. Even Democrats are on his side on this one.
That’s because Democrats consider talk of infrastructure projects as a way to piggyback on Trump’s vow to repair the nation’s crumbling roads and bridges. In fact, this week, a group of senior Senate Democrats revealed their own $1 trillion plan to revamp the nation’s airports, bridges, roads and seaports, urging President Trump to back their proposal, which they say would create 15 million jobs over 10 years.
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Urging Mr. Trump to make good on his grand infrastructure promises, Senator Chuck Schumer of New York, the Democratic leader, said, “From our largest cities to our smallest towns, communities across the country are struggling to meet the challenges of aging infrastructure. Our urban and rural communities have their own unique set of infrastructure priorities, and this proposal would provide funding to address those needed upgrades that go beyond the traditional road and bridge repair.”
But, here’s a chart that shows there’s not much that Trump, Paul Ryan or even the Democrats can cut out of government spending to finance the #HUUUGE $1 trillion investment in badly needed infrastructure improvements. That’s because mandatory spending for social service programs – primarily Medicare and Social Security – account for about two-thirds of current federal government spending. Worse yet, the social service percentage of federal outlays is projected to go even higher over the next decade.
So, while everyone in Washington is in agreement that infrastructure spending is a good idea, the challenge is going to be finding a way to pay for it in a U.S. economy that’s already loaded up to its gills in debt.
Here’s another hurdle President Trump must overcome to jump-start U.S. GDP growth: The U.S. consumer – similar to the U.S. Government – is tapped out in terms of available discretionary spending money. Making things even more challenging is that the U.S. consumer represents about 65% to 70% of U.S. GDP. And without any extra cash in consumers’ pockets, it’s hard to see much of an improvement in GDP coming from more consumer spending.
Over the first 100 days of the Trump presidency, I’ll be watching GDP growth carefully – and you should too – for any sign of a sustainable uptick because it’s the anticipated rate of GDP growth that will set interest rates. And interest rates, in turn, will determine the direction for stocks.
For now, I expect GDP growth to fall well short of Trump’s goal and to come in around 2.5%, which means interest rates remain low for a longer time than the mainstream media would lead you to expect.
It also means that we won’t be able to make any significant progress toward peeling back the huge mountain of debt that’s smothering the U.S. economy. In my January 20th Money and Markets article, I revealed the increase in real GDP that’s required to reach escape velocity from the debt overhang in which we currently find ourselves.
All in all, despite Trump’s determined rhetoric and ambitious plans, the secular headwinds of an over-indebted U.S. economy remain. So, I see more “muddle-through” for the U.S. and global economy for the foreseeable future.
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