Trump Inherited a Meek Economy, and Made It Roar
Once again, Democrats are trying to attribute President Trump’s economic success to President Obama—and their claims are no truer than they’ve ever been.
Joe Biden’s running mate, Kamala Harris, claimed last month that Trump “inherited the longest economic expansion in history from Barack Obama and Joe Biden” and “ran it straight into the ground.”The media parrot these claims. NBC ran an article in support of Harris’s claim entitled “Data show Trump didn’t build a great economy. He inherited it.” The article notes that new jobs averaged 215,000 per month over Obama’s last four years but only 182,000 per month over Trump’s first three.
This comparison is misleading, however, and ignores factors including job openings and a worker shortage. The National Federation of Independent Businesses conducts a monthly survey asking business owners, “What’s the most important problem facing your business today?” Under Obama, they cited taxes and regulation as numbers one and two. After Trump cut taxes and slashed regulations, business owners cited finding qualified workers as their number one problem.
When Obama left office in January 2017, there were 1.9 million more people unemployed than there were job openings. That’s a lot of people actively available to fill open positions. By March 2018, under Trump, job openings exceeded the number of people unemployed for the first time since the government began reporting such data in 2000. That remained the case for the next 24 months—until the Covid-19 pandemic and shutdowns—with job openings exceeding people unemployed by more than 1 million for 17 of those months.
This is important for two reasons.
First, while having more job openings than people unemployed slowed job growth (you can’t add jobs if you can’t find workers), it drove wage growth—an indicator of economic success that NBC ignores.
By contrast, during Obama’s second term, with more people unemployed than job openings, workers competed fiercely with one another for jobs—and wage growth never hit 3 percent.
Under Trump, with abundant job openings and fewer people unemployed, employers began competing for workers—and wages rose. In August 2018, year-over-year wage growth exceeded 3 percent for the first time in nearly a decade. Wage growth stayed at or above 3 percent for the next 20 months, until the pandemic.
Second, under Trump, abundant job openings combined with rising wages drove an increase in the number of people working and actively looking for work.
During Obama’s second term, with limited job opportunities and stagnant wages, the percentage of Americans in the labor force declined, from 63.7 percent to 62.7 percent. Some of those dropping out of the labor force were retiring Baby Boomers; others were simply discouraged.
Under Trump, abundant job openings and increasing wages reversed that trend. For example, in the fourth quarter of 2019, 74.2 percent of workers entering employment came from out of the labor force rather than from the ranks of the unemployed—the highest share since 1990, when the government began reporting the data.
As a result, labor-force participation increased from the 62.7 percent Trump inherited to 63.4 percent in February of 2020.
Labor-force participation is also important because it influences the unemployment rate. When people drop out of the labor force, the government no longer counts them as unemployed, which drives the unemployment rate down even though they did not find jobs. The healthiest scenario for American workers is when unemployment declines while people are joining—rather than leaving—the labor force.
During Obama’s second term, unemployment declined from 8.2 percent to 4.7 percent—but had labor participation stayed at 63.7 percent, the unemployment rate when he left office would have been 6 percent, not 4.7.
Under Trump, unemployment declined from Obama’s 4.7 percent to 3.5 percent (a 50-year low) even though labor participation increased, to 63.4 percent. Had labor participation stayed at the lower 62.7 percent that Trump inherited, the unemployment rate would have been even lower—2.5 percent, tying an historic low from 1953.
A better measure of economic success is how the actual unemployment rate compares with thenatural rate of unemployment—that is, the jobless rate that would pertain under conditions considered full employment, since there is never zero unemployment even in a highly functioning economy. According to the St. Louis Federal Reserve, under Obama, the actual unemployment rate never dipped below this natural rate. Under Trump, the actual rate dipped below the natural rate in April 2017—and stayed below it until the pandemic.
Democratic claims notwithstanding, Donald Trump’s economic record pre-pandemic was one of formidable success. Trump inherited the weakest economic recovery since World War II—one with anemic job opportunities, stagnant wages, and large numbers of workers dropping out of the labor force. Implementing pro-growth policies that included cutting taxes and regulations, he produced the strongest labor market of modern times. Saying otherwise won’t change that reality.