Rampell: What happens when numbers go south on Trump?

By Catherine Rampell

Back in October, a Marketplace-Edison Research Poll found that two-thirds of Donald Trump voters didn’t trust government-reported economic data, thanks partly to their candidate’s insistence that the numbers are bogus.

Something tells me this attitude is about to change.

After all, Trump will soon take office with among the most favorable economic conditions — as measured by the government and private data sources — imaginable. And you can bet that he, and his supporters, will gleefully claim credit.

Until things go south, anyway.

For now, rose-colored economic data abound. The most recent jobs report shows the unemployment rate down to 4.6 percent. It hasn’t been this low since August 2007, several months before the Great Recession began.

Or consider a broader measure of underemployment called the U-6. This includes workers who are part-time but want full-time work, and people who’ve given up looking for work but still want it. It’s not quite at its pre-recession level, but it has also fallen dramatically.

Wages, too, have risen substantially. Adjusted for inflation, median weekly earnings for wage and salary workers were at an all-time high in the third quarter.

Gas prices remain low, as does overall inflation. Meanwhile, stocks have reached all-time highs, with the Dow Jones industrial average on the cusp of 20,000. Gross domestic product growth for the third quarter was revised upward last week, to 3.5 percent. (Apparently Trump is even making the economy great again retroactively.)

Consumers likewise seem euphoric, with multiple measures of consumer confidence recently reaching business-cycle highs. These numbers are partly driven by a sharp spike in optimism among Republicans in the weeks since the election, but even before then confidence had been trending upward.

All of which is to say: These are some brisk tail winds on which to sail into the Oval Office.

They also represent economic conditions quite different from the catastrophic ones Barack Obama inherited in 2009.

Curiously, though, Trump’s priorities seem predicated on the premise that the U.S. economy is still circling the drain. He plans to usher through a major stimulus package early in his administration, including massive personal and corporate income-tax cuts and a public-private $1 trillion infrastructure plan.

These measures are likely to further goose the economy, at least in the near term. You can bet, then, that early in his presidency, Trump will be touting all sorts of government-sourced economic data as evidence of his tremendous success.

Well, all sorts of economic data except the deficit numbers, maybe.

But here’s the risk. With so many economic metrics already so strong, there’s likely only one direction the economy can head in the medium term: down.

Recent Federal Reserve forecasts suggest that we’ve already reached close to full employment, that inflation will soon pick up and that output growth will continue to slog along at our new normal of about 2 percent.

Of course, Fed Chair Janet Yellen recently acknowledged that the delicate art of forecasting is especially challenging, given the “cloud of uncertainty” surrounding Trump’s fiscal policies. In the same news conference, she also gingerly suggested that there might not be an obvious need for fiscal stimulus right now, given how close we are to full employment. Other economic analysts have noted that stimulus at this point risks overheating the economy.

Not to mention that if Trump implemented some of the other wacky policies he’s flirted with — a trade war, mass deportation, defaulting on our federal debt obligations, returning to the gold standard — a painful recession would ensue, according to multiple private-sector economic forecasters.

Regardless, the historical record suggests that four more years of expansion are unlikely. That is, even if recoveries don’t die of old age, and even if Trump doesn’t spark a worldwide financial crisis by refusing to raise the debt ceiling, it seems reasonable to expect that we might face a recession at some point during his presidency.

So, what happens when the numbers turn against him?

Three consequences seem likely.

One, the administration will start searching for scapegoats other than Trump’s own party and its choices. Immigrants, minorities, Fed officials: Watch out.

Two, assuming Trump will have already signed a major fiscal stimulus package during an expansion, there won’t be much powder left in the keg when Keynesian stimulus is actually needed. That is, fiscal tools available to mitigate the recession will be unusually limited.

And three, the numbers will become suspect once again, and Trump may even try to mess with the official government numbers to suit his narrative. This — and not a recession, blame-gaming or impotent policy response — would cause the most enduring damage to our democracy.

Catherine Rampell’s email address is crampell@washpost.com.

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