Strong economic news

Strong economic news undercuts Trump’s doom-and-gloom message

Friday's report boldly contradicts Trump's claim the country is 'dying at 1 percent GDP.'

By Ben White

The U.S. economy grew at a nearly 3 percent pace in the third quarter of the year, a better-than-expected reading that dents Donald Trump’s case that growth has stalled out.

The faster pace of 2.9 percent may not hold up in the final quarter of 2016 but it offers a positive headline to Hillary Clinton less than two weeks until Election Day, with Trump struggling to erase the Democratic nominee’s lead in national and swing state polls and largely unable to make the race a referendum on a sluggish economy.

“This is still another reason why Trump will probably lose. The economy is in decent shape — so decent that the Fed will have to raise interest rates later this year,” said Greg Valliere, chief global strategist at Horizon Investments. “This report shows a solid economy with -- ironically — decent export growth. Hillary Clinton simply has to avoid gloating. But this is a big plus for her, and she may get another pleasant surprise when the October jobs report is released next Friday.”

The initial reading from the government on third quarter growth, which is subject to multiple revisions in the months ahead, comes after Trump spent portions of the campaign ripping the U.S. economy as a complete disaster. “Right now our country is dying at 1 percent GDP,” the GOP nominee said during the third debate.

Friday’s report will take that talking point away from him. It showed increases in exports, personal consumption, federal government spending and other factors lifting sluggish growth from earlier in the year.

“This shows that the U.S. is roughly on track. It’s a natural bounce back following a pretty underwhelming year so far,” Luke Bartholomew, fixed income investment manager at Aberdeen Asset Management, wrote in a note to clients Friday morning.

Still, the American economy is hardly roaring ahead, despite unemployment at 5 percent, close to what policy makers view as “full employment” and wages now rising at a decent 2.6 percent per year pace. But Trump has been unable, or unwilling, to focus his campaign squarely on boosting growth.

Republicans, even those still supporting the GOP nominee, view 2016 as a largely lost opportunity to frame the race as a referendum on the economy after eight years of Democratic control of the White House. Trump’s anti-free trade rhetoric caught fire in some Midwestern states. But the candidate often found himself mired in controversies of his own making, from attacking the family of an American soldier who died in combat to his crude remarks about women and allegations of sexual assault along with bitter fights with other Republicans.

“At every turn I urged him to talk about the economy and tax cuts, particularly business tax cuts, where there is virtual unanimous agreement to do something,” said Larry Kudlow, an informal Trump economic adviser. “It was a tactical mistake not to and it was a strategic mistake because the economy is poor and the country believes we are on the wrong track and a lot of that is about the economy.”

Indeed the stage was set for the Republican nominee to capitalize on continued sour feelings about the economy. Polls at the outset of the campaign showed a large majority of Americans viewed the nation as on the wrong track and gave Trump significant leads on the question of who would be better able to manage the economy.

The wrong-track numbers haven’t improved much. But pollsters now attribute much of that to general dissatisfaction with the political process and the vitriolic nature of the campaign. President Barack Obama’s approval ratings rose steadily during 2016 and now sit at 53 percent, according to Gallup. That suggests the wrong track number is no longer a very good indicator of anger directed specifically at the incumbent White House party. And more specific questions about people’s own economic situation and confidence about the future are much better than the wrong track numbers.

“The wrong track number does not seem to respond to objective economic change,” said Charles Franklin, a polling expert at Marquette University Law School. “I think it’s become a pretty poor indicator.”

And Trump’s edge on the economy as an issue is now minimal over Clinton. A recent Fox News poll showed Trump with just a 4-point advantage on the issue, 50 percent to 46 percent. Gallup has the edge at 3 points. A CNN/ORC poll in September found Trump with a 16-point edge on the economy. The same survey this week showed Trump’s edge down to 4.

And while voters consistently rate the economy as the top issue in 2016, Clinton’s large polling leads on other questions such as having the “temperament” to serve as president and manage foreign policy have blown out Trump’s narrow edge on pocketbook issues.

Republicans also say that consistent questions about Trump’s own business practices including his corporate bankruptcies, admission of paying no federal income tax and refusals to release his own returns undermined his case as a corporate titan capable of igniting U.S. growth.

The GOP nominee has also generated controversy with his talk about the U.S. economy as a hollowed-out hellscape of shuttered factories and violent inner-cities menaced by dangerous illegal immigrants. That message played well with much of Trump’s white, blue-collar base but alienated more moderate Republicans including those in suburbs – and revitalized city centers – who just don’t experience the economy Trump describes.

“Our campaign was relentlessly focused on the economy. Everything we did was focused on sending the message that there was a better way,” said Katie Packer, a Republican operative who worked on Mitt Romney’s 2012 campaign and helped lead the “Never Trump” movement this year. “And this was always going to be the problem with Trump because he has no ability to stick to a message and make it about the people and not himself. And his business record is not exactly exemplary and gave Democrats many opportunities to exploit it.”

Trump has also fumbled in many instances when talking about the economy and trade. He’s called this the worst economy since World War II when in fact there have been many recessions since then, including the sharp one in 2008 and 2009. He’s talked about the “real” jobless rate being 42 percent. Even the broader figure taking into account discouraged workers is now 9.7 percent, not far over its historical average.

On trade, Trump scores when railing against deals like the North American Free Trade agreement. But he never filled in the details about how exactly his own trade deals would be better. And he has threatened massive tariffs on imports that even most conservative economists argue would drive up consumer prices and lead to much lower domestic growth.

“He says things that are just obviously bogus and nonsensical,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

And now one of Trump’s top talking points — that the U.S. economy is basically running at stall speed — is no longer operable just 11 days for the election. All of it now has Republicans talking about what might have been.

“Trump’s got a good tax plan including his small business tax cuts,” said Kudlow. “He just missed the opportunity to really hammer it home.”