COMMENT: Momentum appears to be shifting: The American president can and will boast of a record third-quarter recovery, writes Russell Lynch
Donald Trump shared his own novel theory on the origins of coronavirus in a recent Minnesota stump speech to supporters.
Forget Wuhan laboratories, or 5G broadband conspiracies: According to the president, “God was testing me.”
A tongue-in-cheek (one assumes) Trump said the Almighty was punishing him for his hubris in boasting about building “the greatest economy in the history of the world”. So one pandemic later “now I have to do it again”, he quipped.
Just four months ago, when Covid-19 put more than 20 million Americans out of work, the thought of Trump fighting November’s election on the economy seemed farcical.
A proud presidential record, including an unemployment rate at a 50-year low of 3.5 per cent, was in tatters.
A brutal April-June quarter saw the world’s biggest economy shrink a record 9.4 per cent.
But now that picture is changing. A look at the recent data suggests that the “Big Mo” beloved of US politicians is behind him.
Suddenly, the bookmakers are shaving their odds on the property mogul becoming the first president since Calvin Coolidge almost a century ago to win a second term in the teeth of a recent recession.
Take housing, for example. Even with unemployment at 10.2 per cent, the monetary stimulus poured on by the Federal Reserve and generous financial support to households has helped light a fire under the market.
July saw a huge rebound in construction starts on new homes, jumping 22 per cent to an annualised pace of 1.5m during the month: that was well in excess of expectations and the highest since 2006, when the pre-financial crisis housing bubble was just swelling to a peak.
Alongside that fillip, the number of building permits – a decent indicator of future demand – also rocketed more than 18 per cent to 1.5m.
Meanwhile, sales of existing homes soared 25 per cent to hit 5.9m, wiping out all of the damage to the market inflicted by Covid-19.
No wonder confidence among housebuilders has soared to its highest level for more than 20 years.
The figures certainly raised eyebrows among economists, with Capital Economics suggesting that the speed of the turnaround “is still something of a surprise”.
The construction boom is such that the builders are even worried that a lumber shortage could put the brakes on the housing recovery after production was cut and pre-existing stockpiles wound down, more than doubling the price.
The shock of the pandemic hasn’t crimped the US consumer either, helped out by those US$1200 ($1800) government cheques in the northern spring and US$600-a-week benefit top-ups until last month.
A third successive month of rising retail spending has left sales 2.5 per cent above the pre-Covid peak, at their highest since records began in 1992.
Admittedly, the 1.2 per cent advance last month was the weakest since the shutdown, but sales were still 2.7 per cent above the same month last year.
Personal consumption accounts for 70 per cent of the economy and shoppers are spending more online, even though they are still avoiding bricks and mortar retailers and restaurants for now.
Other signs of politically useful momentum for Trump come from manufacturers, which have recouped some 60 per cent of output lost to Covid-19. Financial data firm IHS Markit’s snapshot of manufacturing and services activity – albeit less reliable due to the wild swings of the pandemic – is now at an 18-month high, which suggests that companies are shrugging off the worrying jump in Covid-19 infections seen in July.
Oxford Economics’ latest recovery tracker, which monitors a basket of measures from flights to steel production and mortgage applications, indicates a majority of US states showing recovery signs for the first time since April. Those include Florida, a key swing state that the president will likely have to hang on to in order to win again in November.
These signs of momentum will be borne out in the third quarter GDP estimates, due to land in the full heat of an election campaign in mid-October and likely to show the US economy surging at an annualised rate of as much as 20 per cent.
No matter that the second-quarter decline was even steeper, or that in 2020 overall the US economy will shrink some 5 per cent: mathematics alone means Trump can and will boast of a record performance for the economy between July and September.
That line of attack could prove fruitful against his Democrat rival Joe Biden, whose rope-a-dope election strategy thus far has been to sit back and say nothing as the president committed blunder after blunder in his early response to the pandemic. That response won’t hold for much longer, though.
Democrats talked apocalyptically at their convention about Trump’s “season of darkness” gripping America.
Trump, on the other hand, can turn to the American people, point to the data, and say “have you seen what the other guy is planning to do on tax?”.
Biden’s plans to partially undo the president’s tax cuts by lifting corporation tax back to 28 per cent from 21 per cent can easily be painted as the act of a dangerous Leftist with the potential to undermine a fragile recovery.
The use of enhanced benefits rather than a furlough scheme like the UK also plays into Trump’s hands electorally, as the US has already had the worst of its news on unemployment, adding to the sense of momentum.
Relations with China are arguably the weakest part of Trump’s economic legacy as a tariff war threw grit in the cogs of world trade and slowed the global economy last year.
But the president – not unreasonably – paints that as sticking up for American interests: Biden has also been forced on to Trump territory here by pledging to be tough on China.
He’ll also get brickbats on race but Trump can also point to higher weekly wages for blacks and Hispanics since he took office.
His weakest flank is Covid-19, but the president’s potential move to rush through the experimental vaccine developed by Oxford University and AstraZeneca for use in October gives him the chance to cover it.
Despite 170,000 deaths, being able to vaccinate people during a campaign would send a powerful political message long after all but the anoraks have forgotten his musings about injecting bleach.
Of course, the polls are giving him no chance.
But they didn’t in 2016 when Hillary Clinton was expected to walk into the White House.
The thing about Donald Trump is that everybody – practically everybody – tends to underestimate him except the man himself.