So President-elect Trump’s press conference was as expected, what a good idea to bring your own cheer leaders……moving swiftly on.
Steven Mnuchin, Mr Trump's choice for US Treasury secretary is looking to achieve GDP of between 3% and 4% over the coming period, a big change from the around 2% per annum we have seen since 2009, of course we await details of how this will be achieved. We do have Mr Trump’s election promises of infrastructure spending, tax cuts and incentives for American companies to bring offshore funds back home. However, we also expect trade frictions and of course immigration issues, which may result in tighter policies on entering the US, and of course a number of undocumented residents being ejected.
The difficulty is, in order to achieve this level of growth there needs to be a huge rise in productivity and indeed a big jump in the US workforce, without these elements GDP cannot accelerate. On the surface the immigration policy appears to be in the opposite direction of what the economy requires.
Indeed US demographics are not very good. As mentioned the economy has grown about 2% a year since 2009 while the population has only grown by 0.76% per year, down from 0.93% in the decade to 2008 and the situation is on a downward sloping trend. According to the Census Bureau estimate released in December, the American population grew to 324 million last year matching the smallest annual rise since 2013, which is the lowest rate of growth since 1937, during the Great Depression. So the productivity challenges since the end of the global financial crisis have been hit by the headwind of demographics moving in the opposite direction.
Census Bureau information on the housing market seems to reflect the demographic problem with the number of new households averaging 32% less in the last five years than in the decade previous to 2008. Seems to make sense, less people buying less goods equates to less price pressure which results in a decline in investment in aging plants and equipment - ultimately leading to falling productivity; the opposite of Mr Mnuchin’s forecast.
The Trump administration’s immigration policy, although unclear at this stage, certainly does not appear to embrace immigration, which is very scary in the face of the worrying demographic picture; anyone care to mention the demographics of Japan, still trying to engineer growth and inflation after two decades.