After tomorrow’s US election, whoever emerges as the winner will inherit an economy in a much better state than the one Barack Obama took control of eight years ago. But a number of issues remain – not the least being that if history is any guide, the winner will have to deal with a recession.
Fortunately it seems most likely that Hillary Clinton will win the election tomorrow. And clearly her winning would be better for the US (and world) economy. While you can debate about the worthiness of Clinton’s tax and economic plans, it’s pretty clear that in Trump the USA would have an historically corrupt, incompetent and erratic president – not something you want when the office involves nuclear weapons and oversight of an economy of around 150 million jobs.
With that caveat, let us look ahead to what the new president will have to deal with.
Firstly those who champion the Obama presidency most generally look at the unemployment rate. At 4.9% it is well below the 7.8% it was in January 2008, when Obama took the oath of office, and half the 10% peak reached later that year:
But, as in Australia, the US unemployment rate hides some important details – including the decline in the participation rate.
In February 2008, when the US unemployment rate was also 4.9%, the participation rate (the percentage of adults either working or looking for work) was 66%; now it is 62.8%.
The impact of this can be seen in the employment to population ratio. While the unemployment situation is now back roughly where it was prior to the GFC, the level of the US population employed remains worse – indeed it is worse than it was when Obama became president:
But it is not all bad news. A major cause of the decline is not a weaker economy, but (again, as in Australia) an ageing population.
While the overall level of the adult population in the US who are employed is worse now than in January 2008, the proportion of 25-54 year olds is actually higher (though still below the pre-GFC high):
The Obama government (and the Clinton campaign) has also made great note of the fact that employment in the USA has now grown for 73 straight months – a post WWII record.
But that record hides that the level of growth has been weaker than in other similar recoveries. While there has been now six years of employment growth, all up that has only seen 11% more employed in that time – well below the six year peak growth of 16% observed under Bill Clinton’s presidency, or the 21% during the Reagan-Bush years, let alone the massive growth of the 1960s:
The employment growth also points to a big issue for the next president – one that has been a key issue of the election – the hollowing of the middle class.
As in most nations, education is a key determinant of employment in the USA.
While the overall unemployment rate is currently 4.9%, for those with a bachelor degree or higher it is just 2.6%. For those with some college education, or an associate diploma, the rate is 3.8%. The rate for those who only have a high school diploma is 5.5%, while it is 7.3% for those who didn’t even finish high school.
So the situation is better the more educated you are. But in the past four years something odd has occurred. The proportion of people without a high school diploma who have a job has increased – to the point where it is now back to the level it was prior to the GFC. But the proportion of those employed at all other levels of education remains worse than in the past:
So there has been a bit of a boom for the lowest paying jobs and jobs for workers with high levels of education faired best through the GFC. But for those in the middle have fared the worst.
Not surprisingly then, despite the ongoing employment growth, wages in America are growing poorly – it’s now nearly five years since average earnings grew by more than 3% in any 12 month period:
So to an extent the issues of the USA economy are of a kind with Australia – ongoing but weak employment growth, weak wages growth, and an ageing population.
But there is another wrinkle for the new president.
Since world war two, the USA has had 11 recessions, and in the past 40 years there were five recessions in 1980, 1981-82, 1990, 2000 and 2007-09:
The next presidential term ends in 2020. By then it will have been 11 years since the end of the “great recession” – well within the usual time frame for another recession.
Right at this moment a recession isn’t on the cards. The US economy is improving just enough that the US Federal Reserve is even thinking about raising interest rates. But if the next president gets through the term without experiencing a recession it will have been quite an achievement.
While economic issues will be ever present, as ever politics will do its best to make things just that bit worse.
Both candidates have economic plans that would increase the US government debt. Clinton’s would increase it by US$200bn over the next decade, Trump’s would increase it by US$5,300bn. Yep, five trillion dollars – almost all through tax cuts.
Although Clinton’s plan does not add as much to the debt, that won’t save her from a major political fight over the issue.
Last year, as part of the deal to stop the government shutdown, Obama and the Republican party agreed to extend the government’s borrowing authority until 15 March 2017 – just over a month after inauguration day.
It means one of the first issues a Clinton presidency would have to deal with is a Republican party congress threatening to shut down the government.
Given how much emphasis the USA puts on the first 100 days of the presidency, you can bet the Republican party will do its best to make life awful for President Clinton – regardless of the impact such moves might have on the economy.
