Economic Report of the President Together with The Annual Report - - PowerPoint PPT Presentation

Together with The Annual Report

• f the

Council of Economic Advisers

March 2019

Economic Report

• f the President

GDP growth during the four quarters of 2018 was the fastest since 2005. This Administration is the first on record to have experienced economic growth that meets or exceeds its own forecasts in each of its first two years in office.

Growth is Beating Market Expectations

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0.2 2.6 1.6 1.5 2.6 2.7 2.0 1.9 2.5 3.1 0.3 3.0 3.1 3.0 2.6 3.3 3.0 2.7 2.4 2.3 2.3 3.1

1 2 3 4 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Actual President Obama Forecast President Trump Forecast

Administration Real GDP Growth Forecasts vs. Actuals

Q4-over-Q4 growth (percent)

Sources: Office of Management and Budget; Bureau of Economic Analysis; CEA calculations. Note: Administration growth forecasts are for that year. For example, the 2009 growth forecast is the forecast published by President Obama’s Administration in 2009.

Real GDP grew 3.1 percent during 2018, 0.9 percentage point above the pre-TCJA trend, and 0.8 percentage point faster than the last term of the previous administration.

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Real GDP is Rising at a Rapid Rate

2.3 2.5 3.1 2.0 2.2

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 2012:Q4 – 2016:Q4 2016:Q4 – 2017:Q4 2017:Q4 – 2018:Q4

Actual 2012–16 growth Actual 2016–18 growth Trend growth

Growth in Real GDP, 2012:Q4–2018:Q4

Compound annual growth rate (percent)

Sources: Bureau of Economic Analysis; CEA calculations. Note: Data represent a compound annual growth rate over the given quarters. The 2016:Q4–2017:Q4 preelection trend is calculated for 2009:Q3-2016:Q4. The 2017:Q4–2018:Q4 pre-TCJA trend is calculated for 2009:Q3-2017:Q4. TCJA = Tax Cuts and Jobs Act.

Preelection trend Pre-TCJA trend

Venture capital deals surged following passage of TCJA, rising nearly $17 billion over the pre-TCJA trend by the end of 2018.

Investment in Startups is Taking Off

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TCJA

10 20 30 40 2010 2011 2012 2013 2014 2015 2016 2017 2018

Pre-TCJA Pre-TCJA trend Post-TCJA

Real Venture Capital Investment, 2010–18

Dollars (billions, 2012)

Sources: National Venture Capital Association; Bureau of Economic Analysis; CEA calculations. Note: Data are non-seasonally adjusted. The trend is calculated for 2009:Q3–2017:Q4 using year-over-year growth rates. Nominal values are deflated using the chain price index for GDP. TCJA = Tax Cuts and Jobs Act.

2018:Q4

+ $16.7 billion over trend

Investment by independent businesses rose sharply following passage of TCJA, rising $26 billion above pre-TCJA trend by the end of 2018.

Investment is Making Long- Term Growth Possible

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TCJA

180 200 220 240 260 280 300 2010 2011 2012 2013 2014 2015 2016 2017 2018

Pre-TCJA Pre-TCJA trend Post-TCJA

Real Noncorporate Business Fixed Investment, 2010–18

Dollars (billions, 2012, SAAR)

Sources: Federal Reserve Board; Bureau of Economic Analysis; CEA calculations. Note: The trend is calculated for 2009:Q3–2017:Q4 using compound annual growth rates. Nominal values are deflated using the chain price index for private nonresidential fixed investment. TCJA = Tax Cuts and Jobs Act. SAAR = seasonally adjusted annual rate.

2018:Q4

+ $26.4 billion over trend

Manufacturing has been Revived

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Blue collar employment is surging. There were 215,000 blue collar jobs added in 2018, currently 301,000 above the pre- election expansion period trend.

+301,000 jobs created above trend

6,800 7,000 7,200 7,400 7,600 7,800 8,000 8,200 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19

Pre-election Pre-election trend Post-election

Durable Goods Manufacturing Employment, 2010–19

Employment (thousands)

Feb-19

Sources: Bureau of Labor Statistics, CEA calculations. Note: Trend is calculated for the compound annual growth rate on a sample period from July 2009 through November 2016, with forecasted levels reconstructed from projected rates.

Election

Workers are Coming off the Sidelines

In 2018, there was an influx of workers coming off the sidelines. In the 4th quarter, 73% of the flows into employment came from out of the labor force rather than from unemployment—the highest share ever recorded.

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63.0 66.5 71.2

58 60 62 64 66 68 70 72 Average of President Obama's full term (2009:Q1 - 2016:Q4) Average of President Obama's second term (2013:Q1 - 2016:Q4) Average of President Trump's first term thus far (2017:Q1 - 2018:Q4)

Share of Workers Coming Off the Sidelines by Administration, 2009–18

Share of workers (percent)

Sources: Bureau of Labor Statistics; CEA calculations.

Nominal hourly wages grew 3.4 percent over the last 12 months—the fastest pace since 2009 and the 7th straight month above 3 percent. In 2018, the lowest wage earners saw the fastest growth.

Wages are Rising

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Median 10th percentile

• 1

1 2 3 4 5 6 7 2010:Q1 2012:Q1 2014:Q1 2016:Q1 2018:Q1

Nominal Weekly Wage Growth Among All Adult Full-Time Wage and Salary Workers, 2010–18

12-month change (percent)

Sources: Bureau of Labor Statistics; Current Population Survey; CEA calculations. Note: Data are non-seasonally adjusted.

2018:Q4

The full-income poverty measure indicates poverty declined to only 2.3 percent in 2017 compared to 12.3 percent with the official poverty

• measure. Additionally, over 5 million people have been lifted off food

stamps since the election.

Poverty Rate is Decreasing

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Official poverty measure Full-income poverty measure 5 10 15 20 1960 1970 1980 1990 2000 2010

Percentage of the Population Living in Poverty, Based on the Official Poverty Measure and the Full-Income Poverty Measure, 1963–2017

Share of population (percent)

Sources: Burkhauser et al. (2019); Census Bureau; National Bureau of Economic Research; CEA calculations. Note: Shading denotes a recession for at least four months of a given year.

2017 2.3 12.3

Deregulating and Saving

Decreasing regulatory burden and overturning costly regulations from previous administrations is unlocking economic potential. For every significant regulatory action in FY 2018, there were 12 deregulatory

• actions. Net regulatory cuts and their savings of $3.2 billion will continue

each year, translating to $49 billion in present value savings.

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Bush administration $56 billion Obama administration $75 billion Trump administration

• $3.2 billion
• 4

4 8 12 16 20 24 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Real Annualized Costs of Major New Rules, Fiscal Years 2001–2019

Dollars (billions, 2017)

Sources: Office of Information and Regulatory Affairs (OIRA); CEA calculations. Note: The cost estimates for years 2001 through 2016 are taken from the most recent OIRA Report to Congress with an estimate for that year. Negative costs indicate cost savings. The real cost estimate for 2019 is a projected estimate from the OIRA Regulatory Budget for fiscal year 2019. Annual cost estimates include all major rules published that year for which both benefits and costs have been estimated.

The United States is the largest producer of crude oil and natural gas in the world—surpassing Saudi Arabia and Russia. We are also a net natural gas exporter for the first time since 1957.

Unleashing American Energy

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Election United States Saudi Arabia

3 5 7 9 11 13 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

U.S. and Saudi Arabia Crude Oil Production, 2008–19

Barrels per day (millions)

Source: Energy Information Administration. Note: U.S. data are a 4-week moving average of daily field production. Saudi Arabian production data are reported at a monthly frequency and are projected by the EIA for December 2018 and later months.

March 8, 2019

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Drug Prices are Declining

In February 2019, prescription drug prices had the slowest growth in 46

• years. The price of prescription drugs relative to the CPI has fallen 11

percent below its pre-inauguration trend.

1.80 1.90 2.00 2.10 2.20 2.30 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18

Pre-inauguration Post-inauguration Pre-inauguration trend

Inflation-adjusted CPI for Prescription Drugs, 3-Month Centered Moving Average, 2010–2019

Prescription Drugs CPI / All Items CPI (ratio)

Sources: Bureau of Labor Statistics, CEA calculations. Note: CPI covers retail transactions, which are about three-fourths of all Rx drug sales. Inflation adjustments are calculated using the ratio of the CPI of prescription drugs relative to the CPI-U for all items. Trend is calculated for the compound annual growth rate on a sample period from July 2009 through December 2016.

Inauguration Feb-19 – 11 percent below trend

Businesses are investing and taking out more loans. C&I loans now exceed $2 trillion and total loans exceed $10 trillion—both the highest ever recorded.

The Lending Market is Healthy

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$2.16 trillion

1.5 1.7 1.9 2.1 2.3 2015:Q1 2015:Q2 2015:Q3 2015:Q4 2016:Q1 2016:Q2 2016:Q3 2016:Q4 2017:Q1 2017:Q2 2017:Q3 2017:Q4 2018:Q1 2018:Q2 2018:Q3 2018:Q4

Commercial and Industrial Loans Held by FDIC-Insured Institutions

Dollars (trillions)

Source: Federal Deposit Insurance Corporation.

2018:Q4

Crapo bill passed

Workers worry that AI and technology may eliminate jobs. The example of the ridesharing “gig-economy” suggests this is not the case—Ridesharing has increased the surplus for drivers, lowered the cost to customers, and increased flexibility for both drivers and platform users.

Adapting to Technological Change

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0.0 0.5 1.0 1.5 2.0 2.5 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17

Share of Respondents Reporting Income from Ridesharing Platforms in the Past Year, 2013–2018

Monthly share of respondents (percent)

Source: J.P. Morgan Chase & Co. (2018).

Mar-18

Capitalism versus Socialism

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Production declines substantially when socialist regimes take over— sometimes by more than 50 percent. In contrast, capitalism spurs growth.

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• 43
• 47
• 58
• 60
• 50
• 40
• 30
• 20
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Maoist China (cotton, edible oil, and meat) Castro's Cuba (crops) Stalin's USSR (livestock) Venezuela since 1998 (crude oil)

Production Decreases Under Socialism

Percent

Sources: Salazar-Carrillo and Nodarse-Leon (2015); Conquest 1986; Lin 1992; Nolan 1988; U.S. Energy Information Administration; CEA calculations. Note: USSR livestock refers to horses. Percent changes for Maoist China are calculated from 1957 to 1962; the percent changes for Castro's Cuba are calculated from 1959 to 1963; percent changes for Stalin's USSR are calculated from 1928 to 1932; lastly, percent changes for Venezuela are calculated from June 1998 to June 2018.