The debate over whether the U.S. economy has performed better under Joe Biden or Donald Trump has become a focal point in the current presidential campaign. On one side, Vice President Kamala Harris claims that the U.S. economy remains the strongest in the world. On the other, former President Donald Trump argues that he created “the greatest economy in the history of our country,” which he says the Biden administration has subsequently destroyed. For traders and investors, understanding the nuances of these economic claims is essential for navigating the markets. Let’s break down key indicators to assess the performance of both administrations.
GDP Growth: A Tale of Two Recoveries
Economic growth, measured by Gross Domestic Product (GDP), serves as a critical indicator of overall economic health. During Trump’s presidency, GDP growth averaged 2.3% annually from January 2017 to January 2021, including the sharp decline and subsequent recovery caused by the COVID-19 pandemic. Under Biden, the average growth rate has been nearly identical at 2.2% thus far. While both presidents have overseen a post-pandemic recovery, the U.S. has emerged with the strongest rebound among G7 countries, making it a standout in global markets. However, investors should note that periods in the past, such as the 1970s, saw significantly higher growth rates than what has been achieved under either administration.
Inflation: A Persistent Challenge
Inflation has been a contentious topic throughout the Biden administration. Price increases peaked at 9.1% in June 2022, the highest in over four decades, sparking concerns among traders about the purchasing power erosion and margin pressure on businesses. While Trump has claimed this represents “the worst inflation we’ve ever had,” historical data shows inflation rates were above 9% in 1981 and have surpassed that level at various other points. As of now, inflation has cooled to around 3%, though it remains above the rate when Trump left office.
For investors, this persistent inflationary environment could influence Federal Reserve policy decisions, potentially impacting interest rates and bond yields. The Biden administration’s $1.9 trillion American Rescue Plan has been criticized by some economists for exacerbating inflation by injecting large amounts of cash into the economy, pushing prices up further.
Employment: Strong Job Growth with Caveats
Job creation has been a bright spot for the Biden administration, with almost 16 million jobs added since January 2021. This represents the fastest job growth rate in recorded U.S. history. However, it’s essential to recognize that this surge followed unprecedented job losses due to COVID-19, and much of this growth could be attributed to the natural rebound from pandemic lows. According to Professor Mark Strain of Georgetown University, many of these jobs would likely have returned regardless of who won the 2020 election, but the American Rescue Plan did accelerate the recovery.
However, investors should monitor recent signals of a potential slowdown. Job growth unexpectedly weakened in July, creating concerns about a possible downturn in the U.S. economy. The stock markets responded negatively, but they have since stabilized, reflecting cautious optimism among market participants.
Unemployment: A Historic Low with Recent Upticks
Under Trump, unemployment fell to a low of 3.5% before the pandemic caused it to spike. As the U.S. economy reopened, the rate gradually dropped to around 7% when Trump left office. Under Biden, unemployment reached a 50-year low of 3.4% in January 2023. However, it has since edged up to 4.3%. For traders, the current level of unemployment suggests a tight labor market, which could keep wage inflation elevated and influence Fed policy.
Wage Growth: Gains Eroded by Inflation
Wages grew under both administrations, but the pandemic skewed data as lower-wage jobs were disproportionately lost, artificially inflating average wages. Under Biden, nominal wages have continued to rise, but these gains have been overshadowed by inflation. When adjusted for inflation, real wages remain below their levels when Biden took office. For investors, this could translate into continued pressure on consumer spending power, impacting sectors reliant on discretionary spending.
Financial Markets: Record Highs and Volatility
The performance of the U.S. stock market, a barometer closely watched by traders, presents a mixed picture. Under Trump, the Dow Jones Industrial Average reached record highs but saw those gains erased as markets tumbled during the pandemic. By the time Trump left office, markets had recovered above pre-pandemic levels. Under Biden, markets have reached new record highs, although recent volatility has unsettled some investors. The stock market’s resilience can provide confidence to those looking to stay invested, but the potential for volatility remains high amid concerns about inflation, interest rates, and geopolitical tensions.
Key Takeaways for Investors
- Economic Growth: Both administrations have shown similar GDP growth rates post-pandemic, with the U.S. leading the G7 in recovery.
- Inflation Pressures: Inflation has cooled from its peak, but it remains above pre-Biden levels. Investors should stay alert to Fed actions that could impact rates and market sentiment.
- Employment Trends: Strong job growth has helped support markets, but recent signs of slowing could signal future economic challenges.
- Wage Dynamics: While wages have grown, inflation has eroded real gains, potentially affecting consumer sectors.
- Market Volatility: Record highs under both administrations show market resilience, but caution is advised amid ongoing economic uncertainties.
Conclusion
While both the Biden and Trump administrations claim credit for economic successes, the reality is more nuanced. For traders and investors, the key will be to stay informed about policy decisions, economic data releases, and global events that could shape market trends. Balancing opportunities with caution in an ever-changing landscape will be crucial.
