What Our Trump Time Machine Got Right -- and Wrong -- About the Economy

far off. Now that Trump has been president for half a year, we'll look back on how things have actually gone for the economy and make some new predictions for the next twelve months. I'm Scott Landman, an economics editor with Bloomberg in Washington. Joining me as a guest co host is Gina Smile like a Bloomberg reporter covering the Federal Reserve and US economy. She's in our New York studio. Hey, Gina, is it going good? How are you? How's DC doing

great today? It's a hot day down here. Just thinking about a year ago, we did a Benchmark episode where we went into the future and we talked about what it would be like six months under Trump, Gina, is there anything that you can think of that's been really surprising to you over the last six months. I cover the Federal Reserve, So the most interesting thing has been that he's been relatively quiet about that because it didn't look like it at this time last year. It didn't

look like that's what would happen, um. But no, I think aside from that, you know, it's been pretty much, you know, smooth sale and economy is looking good. At least for the economy, it's been smooth sailing. We have We've had news on other fronts that maybe looks like it's not going to be as smooth, like for the healthcare legislation for example. But yeah, I mean, I agree with you. There haven't been any huge surprises on the economy.

It's been kind of plugging along. We haven't really seen the fiscal boost that we were thinking about six months ago, that that there could be something from infrastructure or tax cuts. But you know, it has been fairly steady, and Trump has, of course tried to claim credit for some of that. Anyway, on the phone with us now is the same economist who played along with our conceit last year. It's Neil Data,

head of US economics at Renaissance Macro Research in New York. So, Neil, Gene and I were just talking about how, you know, even though the economy has been performing fairly decently lately, we seem to have all this chaos going on in Washington. We just had the healthcare bill kind of blow up. It's not clear what's going to happen on the tax plan, and yet you know, the economy seems to be chugging along.

Is this something that you could have seen happening, or you know, has the does the economy has been functioning really independent of what's been happening in Washington. It's a great question. Thanks for having me back. Um, you know, the first thing I would say is that policy uncertainty being high is um a fairly and frankly normal feature of this recovery. I mean, really since since two thousand and nine, whether it was you know, the dead ceiling

um drama of eleven or the fiscal cliff debate. After the twelve presidential election we had a government shutdown, I believe in so it's not an unusual, you know, feature of what we've seen over the last seven or eight years, and so, um, you know, policy uncertainty has been quite high for quite some time, and you know, what we've seen over the first you know, six months of this

year is really no different. I guess you could argue that it's surprising given the fact that we have unified government in Washington, but you know, I mean, everyone knew from the beginning that, uh, that changing healthcare was going

to be a tall order. Um despite that, So, you know, and in terms of, you know, why the economy hasn't really done much in the face of that policy uncertainty, I think number one, it's because you know, I think consumers and businesses are used to, um, you know, sort of chaos in Washington. I mean it's it's sort of we've become numb to it in some respects. And I also think that the economy never really needed that much

stimulus in the first place. I mean, we're we're closing in on full employment with respect to the labor markets. I think what's important is that the global economy this year has shown a significant upward momentum, and that had been a significant drag on the economy really since the middle of um, you know, through the middle of that drag is now fading, and you know, we've seen sort of almost a synchronized recovery and global manufacturing activity and

UH and and trade. So you're surprised at the resiliency of the economy given all this uncertainty that's been happening, and that the lack of any kind of fiscal boost. I don't think it's that shocking. I mean, the economy was fine, you know. I think what we're learning is that Trump basically came in at the front end of the front edge of a cyclical recovery in the global economy. Um.

I think that's what we're learning. I mean, if you look at you know, what's been driving the stock market over the first six months of the year, it's primarily stronger corporate earnings growth. I mean, you know, yields have come in a little bit. Can you can you give Trump any of the credit for some of that or is it this is also just part of the economic momentum. No, I mean, I think it's it's the it's the I

think it's the economic momentum. I mean, I think the global economy was strengthening, and you know, really, I mean people talk about the reflation trade, I think the reflation trade really started in the middle of last year, and now it's kind of morphed into a growth trade. I don't think that Trump has had much of an effect

on the economic fundamentals one way or the other. I think it's largely I mean, in terms of macro policy, it's it's largely a function of of the FED, the global economy, and I think global central banks and policy makers. We did see quite a Trump bump. And when it came to consumer confidence, you know, has that been at all important economically? Did it surprise you at all? You know,

how do you view that one? There was a big debate I mean a few months ago about the hard data and the soft data, right, so you know, this is the idea that you know, actual activity measures, things like you know, core retail sales and core durable goods and you know, even to some extent employment were sluggish

while these confidence measures were were quite strong. And and again, I mean, I think it's hard to know whether it was Trump or whether it was simply the uncertainty around the election going away and the underline fundamentals kind of getting a chance to show their to show their face. Um, you know, I think clearly the consumer sentiment and small

business confidence. You can make this kind of political argument about confidence surging after the election because of the unexpected outcome, um you know, in terms of one and you had unified Republican government, right, So I do think that there's some support for that, you know, But I think in other areas, UM it's, it's, it's it's a bit more ambiguous, um as I say, I think, you know, this sort of disconnect between soft data and hard data really only

applies to consumer spending. If you look at other areas of the economy, you know, things I mean, for example, the ice and manufacturing index searched as well, and you know, not in surprising that you're seeing stronger equipment spending. Alongside that, you seem stronger actual industrial production too. Let let me interrupt you again. What what about the some of the some of the um negative things that we actually talked about a year ago came true, such as the Trans

Pacific Partnership, That trade deal died. They've started renegotiating the North America can Free Trade agreement. There's been reports that you know, undocumented immigrants are being deported and that's potentially hurting the economy. Are you concerned about any of these factors being constraints on the economy in any way. You know, I think it's too early to tell. I mean, um, I mean, I think there's always a lot of sensitivity

when you're talking about these subjects. Um. You know, look look at look at the currencies and how they've performed so far this year. I mean, the Mexican peso is one of the best performing currencies this year, and nobody thought that. Nobody thought that was going to happen, exactly right. I mean that that would lend support to the idea that the protectionist rhetoric that came out of the Trump campaign hasn't really manifested itself in any meaningful sense. And

with respect to policy. Now, I think that you know, you still might get the steel tariffs stuff. You might get steel tariffs, you may get I mean, you have some enforcement mechanisms going on with with softwood lumber. But I mean there are other stories that are not as widely reported. I mean, there was a you know, and I haven't run some kind of sensitivity analysis, so I don't know. But I mean, for example, I mean the you know, US farmers selling beef to China. I mean,

that's a pretty significant event. I mean, we haven't been doing that for years, and it wasn't it wasn't that something that the Obama administration supposedly set up for Trump to East you know, in China's ease. That may well be, but I mean it's um, you know, let's just look at how the currencies have responded. I mean that the loony and the Mexican Paso have strengthened over the last

six months. Right, So if it were true that you know, NAFTA was being renegotiated in a way that was you know, very detrimental to our major trading partners, that partners, that's not the kind of currency action that you'd expect to see. So um, you know, and you know, I think I was reading an article recently talking about how, you know, Trump has maybe cave somewhat to you know, with respect

to the summer visas and things like that. So I think you can make a reasonably strong case that the worst case outcomes out the market was pricing with respect to trade, you know, protectionism, that's probably a bit have been avoided. That doesn't mean the policy that we've seen is actually good and that kind of begs the question, though, like you're saying, you know, the worst certainly didn't come true. Things are looking pretty good. What are the risks going

forward coming out of the White House? You know, do you see anything that could potentially derail this solid growth that we're seeing right now, or do you think that things are going to pretty much continue along? Guys? They are. You know, I I sort of sympathize with it, with the idea that that the White House at this point can only screw things up as opposed to getting them better.

And but you know, as I say, I mean, one of the things that I remember talking about with you guys last time is this idea that you know, the big risk to the economy would have been if they actually got a significant stimulus through, right because if we were, if we're operating close a full employment, then and you and you and you sort of embark on a you know, a package of tax cuts in large infrastructure spending and

run a wider budget deficit. We thought that was going to cause inflation and cause bond yields to rise and

everything like that. Well, it would cause inflation, bond yields to rise, a more aggressive fed but importantly would begin to essentially crowd out activity in the construction industry at a time when you know, the housing industry I think needs those workers, right, So, I mean, you know that that's that's basically been the problem this year in the housing market is that you've seen you know, decent growth and things like new new home sales and you know,

sort of signed contracts but purchase applications, but you know, fairly sluggish growth and single family residential construction. So you know, to me, the fact that you know, I mean, we can call it chaotic. You know, I think that the fact that the legislative agenda isn't getting rammed through, you know, in summer specs is a good thing to me that mitigate that mitigates a downside risk because you know, I would just say that we don't number one, we don't

really need the stimulus right now. I think the FED can essentially take care of it. And you know, if if if you were to actually get that large stimulus, it would it would it would draw resources, labor resources away from industries that that that need them quite frankly, and that's an important point is that the economy that was inherited by the new administration was not an economy

that was in crisis. This is not two thousand and nine, so you know, I mean as corporate tax reform nice, Yeah, absolutely, it would be nice to have, but it's not a need to have. I mean, the economy isn't begging for it at the moment. We'll just well, just building on that question the issue that Gina raised, we have one more thing coming this year, and that's the UH debt ceiling that has to get increased or else we could see some consequences in the markets. You could see a

government shutdown. How much of that is a is a risk now you know that could really have some tangible impact or do you feel confident that that's probably gonna get resolved either way. I think it's a risk, but it's a very small risk. I mean, I think it's very unlikely that you're going to get this kind of brinksmanship in a unified government. I mean, you know, the debt limit isn't the same thing as getting healthcare reformed

ut um. So I think that it's it's it's it's highly likely that this turns out to be um, you know, sort of an event that kind of comes and goes and using this to kind of extract kind of some kind of a concession I think is unlikely. Um, So you know, I'm not worried about about government shutdowns or you know, sort of debt limit drama in any meaningful sense that's gonna kind of, um get the markets spooked in the fall. So ignore the drama that seems to

be the main message that I'm hearing from you. Well, Neil Dudda will have to leave it there. Thanks so much for joining us today. Benchmark will be back next week and until then, you can find us on the Bloomberg terminal, Bloomberg dot com, our Bloomberg app, as well as on Apple Podcasts, pocket Casts, and Stitcher. While you're there, take a minute to rate and review the show so more listeners can find us and let us know what

you thought of the show. You can follow me on Twitter at at Scott Lanman, Gina you are at you can find me at Gina Smile, and you can find analysis from Neil and his colleagues at at Wren mac l l C. Benchmark is produced by Sarah Patterson. The head of Bloomberg Podcast is Alec McCabe. Thanks for listening, See you next. Time