Trump Should Give Thanks, Not Take Credit, for Economic Growth

The president’s presence alone can’t explain why the whole world is enjoying growth and booming stock markets

In the year since Donald Trump was elected president, the economy and markets have been on a roll. Stocks have set one record after another, unemployment has dropped sharply and the U.S. enjoyed its strongest six months of economic growth since 2014.

Mr. Trump thinks he knows why: “The reason our stock market is so successful is because of me,” he declared earlier this week.

But Mr. Trump should be giving thanks, not taking credit. The entire global economy is picking up steam, and foreign stocks are outperforming American markets. This suggests the U.S.’s good fortune is due less to Mr. Trump’s presence than to a broader, global trend. Years of highly stimulative monetary policies by central banks have finally overcome various postcrisis headwinds holding back growth.

.. growth in China, the eurozone and Japan this year has exceeded both economists’ expectations and those countries’ long-term potential growth rates.

.. Blue chip shares are up 21% in the U.S. since election day last year, 22% in France, 28% in Germany, 34% in Japan and 26% in emerging markets.

.. So why is the market up so much? The overall economy “was better than markets realized this time last year,” says Charles Himmelberg, Goldman’s co-chief markets economist. “It was a little bit of a happy coincidence that markets started to fully price the strength of that macro data when Trump got elected.”

.. The problem is that pace of growth isn’t sustainable. It required employers to add so many more workers that the unemployment rate dropped 0.4 percentage point. Keep that up and the labor market is going to run out of people.

That would finally make the Fed nervous enough about inflationary pressure to pick up the pace of interest rate increases, withdrawing the monetary medicine that got the current global upswing started.

As the global economy picks up, inflation is oddly quiescent

But central banks are beginning to raise interest rates anyway

 ..  Turkey, perhaps the only big economy that is obviously overheating, the central bank—which has been browbeaten by the president, Recep Tayyip Erdogan, who believes high interest rates cause inflation—opted on October 26th to keep interest rates on hold.
.. three elements: the price of imports; the public’s expectations; and capacity pressures (or “slack”) in the domestic economy. Start with imported inflation, which is determined by the balance of supply and demand in globally traded goods, such as commodities, as well as shifts in exchange rates. Commodity prices have picked up smartly from their nadir in early 2016. The oil price, which fell below $30 a barrel then, has risen above $60.
.. Leave aside the transient effects of import prices, and inflation becomes a tug-of-war between expectations and a third big influence, the amount of slack in the economy.
..  As the economy approaches full employment, the scarcity of workers ought to put upward pressure on wages, which companies then pass on in higher prices. On some measures, Japan’s labour market is as tight as it has been since the 1970s. America’s jobless rate, at 4.2%, is the lowest for over 16 years. Inflation has nevertheless been surprisingly weak.
.. the trade-off between unemployment and inflation, known as the Phillips curve, has become less steep.
.. a drop in the unemployment rate in America has less than a third as much power to raise inflation as it did in the mid-1970s.
..  the flatter Phillips curve suggests that the cost for central banks in higher inflation of delaying interest-rate rises is rather low.

Why Germany’s ‘Red State’ Still Backs Angela Merkel

Bavaria could deliver more votes for Merkel than any other

Economic success: export oriented family businesses

Germany has profited from globalization and EU membership

2% unemployment rate: No one is worried about jobs

AfD has tried to hype fear and violence

Bavaria was the birthplace of Hitler’s Nazi party

Unemployment’s Steady Fall Could Signal Trouble—or a Broader Structural Shift

Jobless rate has been below the ‘natural’ level for four months now, with no obvious sign of inflation

Structural changes in the economy could alter this theoretical natural rate, meaning the jobless rate might have room to go lower without throwing the economy off balance. One reason is the aging workforce. Jobless rates tend to be lower for older workers, who are better trained than younger workers and tend to be more settled in their jobs. With a large portion of the workforce in older age groups, it might be the case that the economy can handle a lower jobless rate.

 .. Globalization might help drive unemployment down at home without affecting broader inflation trends. U.S. workers now compete with workers from around the world. An abundance of low-wage workers in China and other developing economies could hold down wages and prices in the U.S. in ways that didn’t happen a decade or two ago. Likewise, technology could be reshaping the interplay of unemployment and inflation: Inc., the internet retailing giant that uses advanced robotics to manage sophisticated warehouse planning, plans major price cuts at Whole Foods Markets Inc., which it recently purchased.