President Donald Trump has been sceptical of economic data and now that he’s president he’s doing something about it.
From the labour market to international trade, reports suggest that Trump wants to change the way that the government measures the economic health of America.
These changes, while seemingly minor, could alter the way that the US economy is viewed by a large swath of the public and allow Trump more ammunition for his desired political changes.
On Sunday, the Wall Street Journal reported that President Donald Trump’s administration is considering changing the way that the US calculates its trade deficit.
The new way of thinking would leave out what are known as re-exports, or exports of goods originally imported from another country, from the exports side of the equation while still counting the good as an import.
For instance, if a widget was imported from China, that would count toward the deficit as an import. If that widget is then sold from the US to a retailer in the UK, it would not count as an export in the ledger, making the deficit increase.
The effect of this would be a massive ballooning of the current US trade deficit, according to economists, which would allow the Trump team to paint the US as a loser in the international economy.
“Transparently a stunt to make the numbers look worse in order to shout at trading partners,” Pantheon Macro chief economist Ian Shepherdson told Politico’s Ben White about the change. “There’s no clamour for this shift among economists, and assuming the BEA continues to publish the data on the old (current) basis, I don’t think anyone will take any notice of the new data. Haven’t they got anything better to do?”
Additionally, the Journal said that non-political appointees at the Federal trade Commission strongly objected to the new idea but submitted updated figures using the new measure anyway.
As noted by the Journal and others, this would allow Trump to point to an ever-growing trade imbalance as further proof that trade deals need to be negotiated and that his more protectionist trade stances are warranted.
Labour market shift
These shifts in the economic narrative are not limited to US trade.
Earlier in January, The Washington Examiner reported that the Trump administration was floating the idea of switching the unemployment measure used to evaluate the US labour market.
Currently, the official unemployment rate is the U-3 measure calculated by the Bureau of Labour Statistics. This measure includes people that are unemployed and have looked for work in the last six months. Currently, the rate of 4.8% is the lowest since November 2007 and indicates a strong labour market.
Trump argued on the campaign trail that this number was “one of the biggest hoaxes in American modern politics” and is a misleading stat on the health of the economy. In fact, Trump has said that the “real” unemployment rate “may be as high as 42%” which appears to be a simple percentage of people not employed against the civilian US population over the age of 16 — including high school students, elderly retirees, and homemakers.
While the 42% figure is not really an accurate measure of the economy, the Trump administration is reportedly considering a shift to the BLS’ U-5 unemployment measure. The measure, currently at 5.8%, includes discouraged and marginally attached workers which are Americans that are unemployed and not in the labour force but ready and willing to work. They are not included in the U-3 measure because they had not actively searched for work in the four weeks prior to the survey done by the BLS.
Trump’s Treasury Secretary Steven Mnuchin, argued during his confirmation hearing that the unemployment rate does not provide a full picture of the economy. White House Press Secretary Sean Spicer would not say the official unemployment rate at a press conference and said Trump is “not focused on statistics.”
Now this change isn’t necessarily as misleading as the trade change, there are solid arguments to be made that alternative measures of the labour force are better used to capture the job situation facing most Americans. It does, however, lack some historical context since the BLS only began to measure U-5 in 1994 versus 1948 for the U-3.
Also, while Trump may use it to argue the labour market is not as strong as the U-3 rate makes it seem, the U-5 rate hit its lowest level since November 2007 in December and is below it’s average of 7.0% since its inception (though that may be skewed by the leap during the financial crisis and smaller sample size).
Another possible explanation for this shift is that by projecting a slightly weaker labour market, this would give Trump more cover for arguing that the Federal Reserve should keep interest rates lower for longer.
Instead of the current normalization of interest rates, which economists have said could offset some of the growth bump from Trump’s policies, Trump — and anyone he appoints to the open positions on the Fed’s Board of Governor’s — could cite this new unemployment number as the reason for a slower path on interest rate hikes.
Working backward on economic projections
Not only is Trump considering changes to backward looking data, but according to reports, future projections are getting a shake up as well.
According to reports on Friday from the Wall Street Journal and the Washington Post, the official White House projections were set at 3% to 3.5% GDP growth in the coming years — much higher than the 1.9% projected by the Congressional Budget Office and 1.8% from the Federal Reserve.
The Post’s Catherine Rampell and the Journal’s Nick Timiraos reported that staffers at the Council of Economic Advisors were told to start with the 3% to 3.5% projections and work backward from there, rather than building their assessment from the current economic conditions.
While the administration does have some say, this manner of giving the projections and asking them to be back-filled is nowhere near typical.
While the Journal reported that the projections were under revision and may not come out as rosy, it is an interesting look at how Trump’s administration is attempting to influence the narrative about the economic impact of his policies.
These shifts aren’t the only concern among economists about the future of US data. The BLS and other data collecting agencies depend on the funding from the federal government to conduct their large and labour-intensive surveys. The BLS alone received just over $US640 million for 2017 from the federal government and the Census Bureau received just over $US1.3 billion from the 2016 budget.
Worries have begun to grow that Trump could slash these budgets, making it more difficult for the agencies to collect the vast amounts of data they do now.
The US government’s data collection is second to none, by most accounts, and any funding cut would make it harder to get a full picture of the health of the US economy.
Overall, these tweaks could change the way that the economic outlook is presented to the American public. The look of a weaker labour market and larger trade deficit, combined with projections of stronger than previously projected economic growth would paint the US economy in a weaker position than current statistics suggest and Trump’s policies as the best way to fix the problem.