What Kind of Economy Will Trump Inherit?

 

Donald Trump repeatedly claims that his previous term as president—or at least the first three years of his term–represents the “best economy ever.”

A large amount of attention has been paid to the question of what the nation’s (and Wisconsin’s) economy will look like after Trump takes office. Much less has devoted to the economy he will inherit from Joe Biden. This column looks at several measures of the current economy.

Jobs

The graph below shows employment in the United States and Wisconsin between January of 2020 and October of 2024 (September, in the case of Wisconsin.) These data are based on surveys by the US Bureau of Labor and reported by the St. Louis Federal Reserve Bank.

Nationwide employment is shown with the orange line and the left-hand axis, employment in Wisconsin by the green line and right-hand axis. In both Wisconsin and the nation as a whole, the current number of jobs exceed the number reached before COVID-19 struck.

Construction Workers

The next chart shows construction workers in the US and Wisconsin. Nationally, the number approaches 9 million, but appears to plateau, despite an estimate from the National Association of Home Builders that the industry will need to hire 2.17 million more workers from 2024 to 2026. This is what a professor of mine called a “happy problem;” a problem created by too much success. If Trump succeeds in creating a mass deportation, the potential problem of a shortage of construction workers would only get worse.

Real Gross Domestic Product

The graph below shows real gross domestic product (GDP) for the US and the nation. The timeline runs from the fourth quarter of 2019—well before covid hit—to the second quarter of 2024. Both GDPs took a sharp decline at the appearance of covid. However, both have since grown to be substantially bigger than their pre-covid values.

Unemployment

The next graph shows unemployment rates for the United States and for Wisconsin. Both peaked in response to the pandemic. Then, both rates declined such that post-pandemic rates are similar to pre-pandemic.

Wages

The next graph plots the average hourly earnings for three groups of people:

• All private employees in the US (shown in yellow)
• All private employees in Wisconsin (in green)
• All non-supervisory employees in the US (in purple)

To eliminate the effect of inflation, the numbers were adjusted to September 2022 dollars. The effect of this is to increase the nominal value of wages paid before 2022 and decrease the nominal value of wages paid after that date.

At first glance, the spike in wages around 2020 is surprising. Why would employers pay more at a time they are laying off employees in response to declining demand resulting from efforts to control the covid virus? The answer is not that employers increased the amount they paid. Rather, the spike resulted from a change to the composition of the work force. Forced to cut back, employers laid off the most valued employees, who were most needed when business picked up.

The period shown runs from 2007 to this fall. However, only the period before 2020 was used in calculating the three trend lines. This was done to give a sense of how close post-covid wages matched the trend line of pre-covid wages. So far, it appears that pay for non-supervisory employees has recovered best from the pandemic.

Inflation

According to the Federal Reserve’s website, the latest (September) inflation rate is 2.1%, essentially at the target rate of 2%. For the last six months the rate, if annualized, is about 1.6%.

Both most recent Democratic presidents inherited economies that were seriously distressed. Barack Obama inherited the Great Recession caused in part by the collapse of the housing bubble and of various financial speculations. And Biden took office amid the peak of the covid pandemic.

In contrast, Trump inherits an economy which, by most measures, is a very healthy one.