Cheat Sheet Q&A - Part 2: Is the economy really improving or is the Trump bump over?

posted by Brian Mudd - 

Cheat Sheet Q&A - Part 2: Is the economy really improving or is the Trump bump over?

Bottom Line: So is that the type of substantive action that'll take a sub 2% growth economy and turn it into a 3%+ sustained economy? Absolutely not. At best, in my initial effort to model the economic growth impact of those executive orders, I'm seeing a potential .2% boost in growth from those polices. Now it's possible that future action taken based on other executive orders could add to the picture (most of the executive orders call for 90 to 120 days reviews to make recommendations for improvement that could lead to future action) but for now any meaningful boost would be coming from an increase in consumer and business spending. 

Consumer and business spending make up about 90% of the US economy. So if they surged based on Trumpian factors - then perhaps we could get from here to there but here's what has to happen. Consumer spending, which is nearly 70% of the US economy, can only rise in two different ways. Wage growth or debt spending. The wage growth is a byproduct of companies earning more money and clearly levering up on debt isn't sustainable over the long-run. In other words it's going to take meaningful economic reforms to sustain meaningfully higher growth. This is where it's a good news/bad news conversation. The good news is that that the potential for the substantive reforms needed to more meaningfully move the economic needle in a sustained way are there...

Employers spent $617 billion on employee healthcare in 2015 (not including the ACA compliance cost). That's a lot of room for improvement that could instead go towards business/wage growth. So simply ending the employer mandate and compliance issues leaves considerable upside for business spending. The biggest of all would be meaningful, comprehensive, tax reform for businesses and consumers. That's theoretically next on the legislative agenda but we don't have any specifics to know what the actual impact would be. So the answer to the original question is that the economy really is improving but only by .2% according to my initial estimates and the answer is that in order for meaningful, sustained economic improvement to occur - meaningful legislation will likely need to be passed. Otherwise we'd largely be pegging our economic hopes on the notion that businesses not having to worry about more government regulation (as was the case under the Obama Administration regulation) will lead to a meaningfully better economy which is unlikely.

If you have a topic or question you'd like me to address email me: brianmudd@iheartmedia.com 

Brian Mudd

Brian Mudd

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