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It’s well known that people have a hard time digesting raw facts. They need some frame of reference.  For example, if your boss told you you were getting a 4% raise this year you probably wouldn’t get excited until he/she told you that the average raise was 2%.  Most of the time we need this form of benchmark to know how to react.  I feel the same about the booming Trump economy.  Over and over I hear that Trump merely inherited a booming economy.  He really didn’t do much.  But, the question is, what should we measure it against?

Well, Laurence Lindsey (who served as a Fed governor (1991-97) and assistant to the president for economic policy (2001-02)) wrote a great article in the Wall Street Journal on October 25.  (You can read the article here.)  In the article he says that a good way to measure these things is against what the Fed had predicted.  Here are some data points:

Under Trump, unemployment:

  1. Dec 2016, the Trump economy beat the Fed prediction of enemployment for 2017 by 4.1 percentage points
  2. Dec 2017, the Trump economy beat the Fed prediction of unemployment for 2018 by 3.9 percentage points
  3. Dec 2018, the Trump economy beat the Fed prediction of unemployment for 2019 by 3.5 percentage points

Under Trump, GDP:

  1. Dec 2016, the Trump economy beat the Fed prediction for GDP by 0.7 percentage points
  2. Dec 2017, the Trump economy beat the Fed prediction for GDP by 0.5 percentage points
  3. Dec 2018, the Trump economy beat the Fed prediction for GDP by 0.4 percentage points

Under Obama, GDP

  1. 2010 prediction for 2011, The Obama economy underperformed against predition by 2.6 percentage points
  2. 2011 prediction for 2012, The Obama economy underperformed against predition by 1.7 percentage points
  3. 2012 prediction for 2013, The Obama economy underperformed against predition by 2.5 percentage points

As Lindsey says:

In sum, the Obama recovery, which was subpar in virtually all respects, ultimately underperformed the Fed’s expectations in terms of GDP growth and the unemployment rate, while the Trump portion of the recovery consistently outperformed expectations. The Fed’s models overestimated the potency of fiscal and monetary stimulus, but largely ignored the supply-side benefits from Mr. Trump’s reduction of the cost of capital, as well as deregulation.

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