Trump magnifies glass-half-empty economy, sways castoff workers

Donald Trump's dark views of a crumbling U.S. economy resonated with an overlooked part of the electorate. Making it great again may prove easier to promise than deliver.

Tapping into pent-up frustration over low wage growth and trade-related job losses, Trump emerged victorious in a tight presidential race with appeals to voters who felt left out of an expansion currently in its eighth year. The Republican's task now is to steer an economy with clear shortcomings, but one that's hardly the disaster he characterized during the campaign.

For one, the U.S. economy isn't showing some of the telltale signs of an impending recession. Inflation and interest rates are low. Consumers aren't piling up debt, but instead are starting to see wage gains accelerate as the jobs market strengthens. And the housing market, the epicenter of the last economic downturn, is far from being overbuilt.

Still, Trump is right that growth has been disappointingly slow and is creating winners and losers. It's been held back by a slew of what economists call structural problems - rising income inequality, an aging population and lagging productivity - that have been years in the making and which helped fuel the widespread voter anger.

"People being upset on the economy matches what's going on with the uneven recovery," said Phillip Swagel, a Treasury official during the George W. Bush administration. "There are just so many people being left behind in the economy, and they are voting."

Middle-class Americans don't feel well off because they're being squeezed by the rising cost of health care, child care and college while having to save more for retirement. Trump riled up his base with promises of reformed trade policies that would bring jobs and wealth to America.

Exit polls showed that 52 percent of voters say the economy was the most important issue as they cast their ballots, MSNBC reported Tuesday. Voters were divided on which candidate they think would do a better job handling the economy: 48 percent said Trump, and 46 percent picked his Democratic opponent, Hillary Clinton.

But data show the pain that Americans feel has been building for years. Manufacturing payrolls have posted a long-running decline that started around 1980 and worsened after 2000. Factories have actually added jobs since President Barack Obama took office in 2009, though not enough to reverse the protracted losses that hit communities across the Rust Belt and South especially hard.

What's more, Trump has argued that growth has been subpar for years, and the benefits of the expansion haven't been fairly spread. So far in 2016, GDP has grown 1.7 percent per quarter on average, half the 3.4 percent quarterly growth rate the nation enjoyed during the 1990s.

"You're seeing a little bit of the urban-rural divide of the winners and losers of globalization, the tendency of metropolitan areas to be the winners, and the rural areas to be the losers," said Michael Gapen, chief U.S. economist at Barclays in New York. "There is a divide and an income inequality that probably reflect the structural changes in the economy, and that vote is likely showing through."

The big question is whether Trump's surprise win - and the break-with-the-past policies he's professed - will so unsettle investors and shake financial markets that it will undercut the expansion.

If the markets are able to recover after his victory - as they did following Britain's unexpected vote to leave the European Union in June - that would give Trump time to put his trade and immigration ideas in effect without having to deal with a downturn as well.

The Federal Reserve, which has frequently killed off economic upswings by sharply tightening credit, has leeway to keep interest rates subdued this time because inflation is low. As measured by the personal consumption expenditure price index, inflation was 1.2 percent in the 12 months through September, below the central bank's 2 percent goal.

Employees are already reaping the benefits from a tighter jobs market, with average hourly earnings climbing last month at their fastest annual pace in seven years.

As a result, the expansion has "pretty solid foundations" as consumers spend out of income rather than take on a lot more debt, according to Nariman Behravesh, chief economist for consulting firm IHS Inc. in Lexington, Massachusetts.

Even if such optimism rings true and the recovery has room to run, that doesn't mean it will be all plain sailing for President-elect Trump. Moody's Analytics Inc.'s Chief Economist Mark Zandi calculates that the next recession could come in 2020 as rising inflation prompts the Fed to jack up interest rates, undercutting growth in the process. Zandi is a registered Democrat and donated to Clinton's campaign.

"The next president could have three years of expansion but the election year might be tough," he said.


Bloomberg contributors: Steve Matthews, Jeanna Smialek, Patricia Laya, Michelle Jamrisko and Jordan Yadoo.

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