Reasons Why Economic Conditions May Hurt Trump

There has been some concern that the Trump administration will benefit from the improved and improving economic conditions put in place under the Obama administration and finally bearing fruit these days. I wrote about this yesterday, especially commenting on the fact that in 2016 income growth in the bottom 30% was higher than the top 20% for the first time this century.

However, there is a strong counter-argument that the economy may well be a negative for Trump. We officially came out of the recession caused by the financial crisis in late 2009. Admittedly, recoveries from financial crises have historically taken far longer than recoveries from normal recession. But this recovery has now been running for over six years and the chances for a renewed slowdown are increasing by the day. In fact, the rising wages are an indication that we are getting close to full employment and faster Fed interest rate hikes will slow that wage growth and the economy down. The fact that we are near full employment alone suggests that job growth will begin to level off or decline.  In fact, this graph from Kevin Drum shows that the rate of job growth peaked in the middle of 2014 and has been declining since.

In addition, the US has a larger problem in that the working age population in this country has also peaked. Axios provided this graph showing the projected working age population including and excluding immigration.

As you can see, the working age population without immigration will actually decline by about 10 million without continued immigration. A declining working age population will result in lower GDP growth and lower business investment. If you want to see what a declining population will do to an economy, take a look at Japan. For the last two decades, Japan has been beset by anemic GDP growth and suffered through six recessions during that time. Most of that is explained by this one graph.

The working age population in Japan peaked in 1998 and has been declining ever since. That virtually corresponds to the two decades of stagnation that the Japanese economy has suffered.

This is why Trump's anti-immigrant stance and xenophobia is so counter-productive. Without immigration, the US economy will continue to shrink as GDP and business investment contracts. And Trump himself may well be the victim of that trend. Unfortunately, so will the rest of us.