Expectations of a slowdown didn’t materialize in the first quarter, as GDP growth came in at a robust 3.2%. Economists had forecast growth of just 2.3%, according to Bloomberg. The first quarter was a sharp improvement on the fourth quarter of 2018, when the economy grew by a meek 2.2% and some investors thought a recession might be around the corner.
There’s no sign of a recession now, although economists warn that strong growth in the first quarter may be fleeting. Consumer and business spending was weak, and imports collapsed after a surge toward the end of last year. That means net exports contributed more to GDP growth than usual. Rising inventories also contributed to growth, suggesting certain business spending could be weak in future months as companies sell down those inventories.
Still, it’s an upside surprise amid skepticism about the legitimacy of a stock-market surge so far in 2019. For those reasons, this weeks’ Trump-o-meter reads BIGLY, the second highest rating.
President Trump needs a win, as he battles House Democrats investigating multiple facets of his business and his presidency. Special counselor Robert Mueller declined to prosecute Trump for possible crimes relating to Russian interference in the 2016 election, but his exhaustive report raised many questions about Trump’s honesty, judgment and competence. His approval numbers slipped below 40% in a recent Morning Consult poll, suggesting the Mueller report has damaged his standing with independents and swing voters.
Trump is such a divisive president that few voters have a neutral opinion about him. For those unsure whether they love him or hate him, the state of the economy on Election Day could be a deciding factor in whom they vote for. Most economists expect growth to slow this year from the first-quarter pace, to perhaps 2.5%. Growth could slow to 2% or so in 2020 as the stimulative effect of tax cuts and a temporary boost in government spending wears off.
Will that be enough to propel Trump to a second term? It’s likely to be close. Trump has been unpopular for his entire presidency, with higher disapproval than approval ratings in virtually every credible poll since he took office. The more unpopular he is, the more he’ll need a strong economy to convince voters to give him a second term.
Trump probably knows this and is contemplating ways to give the economy a jolt in 2020 without help from Congress, where Democrats control the House and are unlikely to pass any legislation helpful to Trump. One thing Trump could do is roll back the tariffs he imposed on about $280 billion of US imports last year, which could stoke markets just ahead of the elections, if the timing were right. He’s also transparent in his desire for the Federal Reserve to cut interest rates to stimulate spending and confidence.
But Trump also “can’t stand prosperity,” as the Wall Street Journal editorial page notes. He repeatedly bumps his own good news out of the headlines by making outlandish pronouncements or stirring political trouble. And sure enough, during a week with solid economic news, Trump insulted former vice president Joe Biden as he entered the 2020 race for president, endorsed Confederate general Robert E. Lee and attacked the former White House lawyer who may have prevented him from blatantly obstructing justice in the Mueller probe. Trump will need all the help from the economy he can get next year.
Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman