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The Economic Record of Biden and Trump Compared to That of Presidents Since Truman

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Chart 1

A.  Introduction

The BEA released on January 30 its first estimate (what it calls its “Advance Estimate” ) of GDP in the fourth quarter of 2024.  This provides the first good estimate of GDP growth during Biden’s full term in office.  We can now see how that growth compares to growth during the terms of other US presidents, and in particular Trump.  Trump has repeatedly claimed that “we had the greatest economy in the history of the world” when he was president, while “Under Biden, the economy is in ruins”.

We now have concrete statistics on this.  Like much of Trump’s bombast, there is no truth to his claims.  This post will examine what the record has been for growth in per capita real GDP, for unemployment, and for inflation, comparing the record we now have for Trump and Biden to that of the other post-World War II presidents.

B.  Growth in Per Capita Real GDP

The chart at the top of this post shows what most take as the broadest measure of economic performance:  the growth in real GDP per capita.  The figures were calculated from BEA National Income and Product Account (NIPA) data (as updated on January 30), accessed via FRED.  They show the average rate of growth in per capita real GDP for each four-year presidential term going back to Truman’s second term (as quarterly GDP data only began to be estimated in 1947).  The presidential terms are defined from the first quarter of their inaugural year to the last full quarter of the final year of their term.

Per capita real GDP grew at an average annual rate of 2.5% under Biden, which is the highest in any presidential term since Clinton’s second term.  And it is almost twice as high as the average rate of growth of just 1.3% per year during Trump’s first term.  Compared to the 19 presidential terms since Truman, Biden would have been sixth (i.e. in the top third) while Trump would have been thirteenth (on the border of the bottom third).

Trump claims that this poor growth performance should be blamed not on him but on the onset of the Covid pandemic in 2020.  Covid would, indeed, have been difficult to manage by even the most capable of administrations.  The Trump administration was, however, certainly far from the most capable.  His mismanagement of the pandemic (including, for example, his repeated claim that it would simply “go away” on its own, his lack of leadership in not calling on his supporters to wear masks, his promotion of wacky “cures” that had no basis in actual evidence, and much more) made things far worse than they would have been.

But even if we allow Trump to claim a mulligan (as he reportedly often demands in his golf game) and leave out 2020, growth during Trump’s first three years in office would have averaged 2.2% per year – still less than what it has been under Biden.  Growth in Trump’s first three years would also have been well less than in Clinton’s second term (when per capita real GDP grew at a 3.1% rate), as well as under Reagan (both terms), Kennedy and Johnson (both terms), and Truman.  It would have been about the same as growth during Clinton’s first term, Carter’s term, and that of Nixon.  Still nothing special.

In other words, even when we leave out the chaos of 2020 during the Covid pandemic, Trump’s economic record was middling at best – with substantially slower growth than under a number of post-World War II presidents.  It was certainly far from the “greatest” in history.  And for his full term, Trump’s growth record ranks at about the bottom-third mark.

C.  Unemployment Rate

Another common measure of economic performance is the unemployment rate:

Chart 2

These figures were calculated from BLS data (via FRED), and are the simple averages of the unemployment rate over presidential terms from January of their inauguration year through to December of their final year.  (One could reasonably argue that the period should start only in February of the inauguration year and end in January, but that one month shift would not lead to a significant difference in the four-year average.  Plus, as I write this I do not yet have the unemployment statistic for January 2025.)

Unemployment under Biden has been exceptionally low, at an average of just 4.2% over his full term.  It was well below the average rate under Trump (5.0%).  Indeed, the average unemployment rate under Biden was lower than under any president since Johnson’s full term in office (1965 through 1968, when it averaged 3.9%), although the average rate in Clinton’s second term (4.4%) was not too much higher.  Over the full post-World War II period, Biden’s record on unemployment was the second-best out of the 19 presidential terms.  Trump’s record was tied with two others for the sixth through eighth ranking.

Again, if we give Trump a mulligan and count only the first three years of his term, the average unemployment rate would have been 4.0%.  Quite good, although the unemployment rate averaged an even lower 3.8% during Biden’s final three years in office.  Also, and as noted in an earlier post on this blog, the unemployment rate during Trump’s first three years in office simply reflects a continuation of the same downward trend it had been on during Obama’s presidency.  What can be said is that in his first three years in office, Trump did not wreck the path the economy was following during Obama’s second term in office (with GDP growth also similar).  The wreck then came in Trump’s fourth year.

D.  Inflation

The main criticism directed at Biden’s economic record was the increase in the rate of inflation (with data from the BLS via FRED):

Chart 3

As measured by the CPI, inflation during Biden’s term averaged 4.9% at an annual rate, the highest since Reagan.  Inflation rose sharply in much of the world following the supply and other disruptions arising from the 2020/21 Covid pandemic, with supply chain issues continuing to mid-2022.  The Russian invasion of Ukraine in February 2022 also added to price pressures as the prices of oil, natural gas, wheat, and other commodities soared for a period.  Overall consumer prices rose in the US, as they did in other developed OECD economies (and by more than in the US in most of them).

Inflation came down sharply (as well as suddenly) in the US in mid-2022 as the supply chain issues were resolved.  Since then inflation has remained above the Fed target of 2% solely because of (not just largely because of, but entirely because of) the rising cost of housing.  Rising housing prices are certainly important – and I plan to address the issue in an upcoming post on this blog – but to address inflation effectively one should be clear on the cause.  One should also recognize that the mirror image of the rising cost of housing is that homeowners are enjoying rising home values, and that two-thirds of US households own their homes.  Those two-thirds are benefiting from the rising values.

Inflation as measured by the CPI was 1.9% over Trump’s first term in office.  This was basically similar to the average rate of inflation since Clinton’s second term, although a bit below where it had been from Clinton through Obama’s first term.  And it was higher than inflation in Obama’s second term (which was arguably too low).

The Trump record on inflation was helped by especially low inflation in 2020 due to the Covid crisis.  With much of the economy shut down, the overall price index in fact fell.  This is highly unusual for the seasonally adjusted rates.  The seasonally adjusted overall CPI fell in each month from March to May, and it was not until August that it returned to where it had been in February.

Particularly noteworthy was the drop in the price of crude oil.  In terms of today’s prices (i.e. the CPI of December 2024), the price of the benchmark West Texas Intermediate crude oil fell to just $23.19 per barrel in April 2020.  This was below its inflation-adjusted price of $25.36 in July 1973 – just before the first OPEC oil price increase – and the lowest in real terms of any month since then except for the single month of November 1998 (when oil prices fell to $21.59 in a brief but intense international financial crisis following from Russia’s financial collapse that year).

A crisis – such as the one brought on by Covid in 2020 – that leads to a sharp and sudden drop in demand can certainly lead to low inflation for a period.  Prices will often then bounce back as the economy recovers.  But one should certainly not want to cause a crisis – where in 2020 the unemployment rate shot up to the highest it had been since the Great Depression of the 1930s – to keep inflation low.

E.  Conclusion

Assessing the economic performance of a presidential term by just three measures is simplistic, of course.  There is much more going on.  These are also aggregate measures, and the measures of relevance to any individual can be quite different.  Distribution matters when looking at growth in GDP per capita; the unemployment rate matters most to those who are at risk of losing their jobs; and what matters in terms of price increases will vary by person (where, for example, increases in home prices are a benefit – not a cost – to the two-thirds of US households who own their own homes).

Still, the three measures of growth in real output, of the unemployment rate, and of consumer price inflation are important and are a common focus in assessments of the economic record of a period.  They receive a good deal of attention in the press and by the public.

One can also question whether the record of any president should be measured by periods that begin and end with the inauguration date.  It can reasonably be argued that the record should begin only three months later, or six months later, or even twelve months later, as new presidential policies and management will only begin to have an influence with a lag.  While there is certainly some lag, what that lag might be is not at all clear.  Also, that lag might be different at different times and for different conditions, depending on the state of the economy when the president takes office.

Given the impossibility of determining what the appropriate lag might be, it is probably fairest to begin the measurement from the date the president takes office.  But one could argue that it should be later.

More fundamentally, some might argue that the influence a president has on economic developments is limited.  No doubt there are limitations, with many underlying economic forces that a president alone cannot affect – at least in the near term.  But while recognizing such limitations, it is too extreme then to say that a president has no influence.  Policy matters, and it is reasonable to assess a president’s success in determining the right policies, getting them passed and implemented, and then seeing the outcome.

Recognizing these limitations, it is nonetheless clear that the economic record of Biden was relatively good.  Growth was strong, unemployment was low (the lowest of any presidential term since Lyndon Johnson), and consumer price inflation – while relatively high – was largely a consequence of the post-Covid disruptions.  And inflation came down from mid-2022 to target levels or below, with the significant exception of housing.

Trump’s economic record in his first term, in contrast, was relatively poor.  It was not the worst among the post-World War II presidential terms, but in terms of growth it was around the bottom third mark.  It was around the middle if one is generous and leaves out the collapse in 2020 due to Covid.  Unemployment and inflation during his first three years in office were relatively good (although not the best compared to others).  But on each, Trump can basically be commended for not wrecking the path they were on that he had inherited from Obama.  And then 2020 came.  It was certainly not “the greatest economy in the history of the world”.

We will now see what Trump’s record will be in his second term.  Trump is now inheriting from Biden (as he had from Obama) an economy where GDP is growing at a strong rate, unemployment is extremely low, and inflation is low.  But while in his first term Trump did not – during his first three years – upset too much the strong path the economy was on, Trump is now moving much more aggressively in his second term.  As I write this, he has just issued orders that from February 4, the federal government will charge US importers additional tariffs of 25% on all imports from Canada (other than 10% on imports of oil), an additional 25% on all imports from Mexico, and an additional 10% on all imports from China (all additional to whatever the tariffs were before, which varied by item)

Such new tariffs are not just costly for the US firms and ultimately consumers who will pay them, the ones on Canada and Mexico are also in clear violation of the USMCA free trade treaty (better known as NAFTA 2.0, as it was largely the same as the original NAFTA treaty).  The first Trump administration negotiated the USMCA treaty, and Trump himself signed it together with Canada and Mexico in 2018.  While Trump is now claiming the 25% tariffs are being imposed due to some new “emergency”, that justification strains credulity.  What is happening at the border now is not fundamentally different from what was happening in 2018 when the treaty was signed.

If the tariffs are not soon lifted, they will cause significant damage to the US economy.  But this is just the start, and it looks like Trump is imposing such tariffs (including on Canada – probably the closest ally of the US – at least until now) to show no country is exempt from his attempt at bullying.

We will see what results.

Real Wages of Individuals Under Obama, Trump, and Biden

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There have been repeated assertions by Trump during the presidential campaign (as well as by Vance in the October 1 debate between the vice presidential candidates) that people’s wages were higher under Trump than they now are under Biden.  What has in fact happened?

The chart above shows how indices of the real wages of individuals have moved during the last two years of Obama’s presidency, the four years of Trump’s presidency, and Biden’s presidency through to August 2024 (the most recent data available as I write this).  There is much to note, but first a few words on the methodology.

The primary data comes from the “Wage Growth Tracker” website provided by staff at the Atlanta Fed.  It makes use of data generated as part of the Current Population Survey (CPS) of the Bureau of Labor Statistics.  From the way the survey is designed, they can obtain data on the wages earned by each household member at a point in time and again for that same individuals twelve months later.  From this raw data, staff at the Atlanta Fed calculate for the individuals in the matched households how much their wages changed over those twelve months.  Since the CPS also collects information on the individuals themselves, they can also then determine what the average (as well as median) changes in wages were for individuals grouped by various characteristics, such as age or gender, race, education, occupation, and more.  The chart above shows both how real wages changed for workers as a whole, as well as the changes with wage-earners grouped by quartile of wage income, from the lowest to the highest.  The figures shown here are for the medians in each category.

The Atlanta Fed wage data goes back to December 1997, is presented in terms of the 12-month percentage changes, and is in nominal terms.  I converted the data to real terms based on the change over the same 12-month periods in the overall CPI (formally the CPI-U, produced by the BLS), converted this to an index number, and then rebased this to set January 2021 equal to 100.  The result is the chart at the top of this post.

In interpreting these figures, it is critically important to recognize that they reflect what households actually experience in terms of the changes in their individual wages.  This differs from what one will normally see when reference is made to changes in mean (i.e. average) or median wages.  The figures in the chart track the experience of individuals, and individuals will normally see their wages start relatively low – when they are young and inexperienced – and then grow over time as they gain skill and experience.  That is the normal life cycle.

Statistics on wages as normally presented, in contrast, measure not what the experience is of individuals, but rather movement in the overall mean or median wages of all those in the labor force at the time.  Changes in such wages will normally be less than what one observes for individual wages, as the labor force is dynamic, with young people entering (at normally relatively low wages) while older people retire and leave the labor force (at normally relatively high wages).  This will reduce the measured growth in average wages as higher-wage workers have left while lower-wage workers have entered.  While this change in the average wage of all those employed at each point in time is a useful statistic to know, it does not reflect the lived experience of individuals, who normally see their wages grow over time (at least in nominal terms) as they gain experience and hence ability.

One sees a consequence of this in the chart above.  Those in the lowest quartile of the distribution of wage earnings have seen growth in the wages they earn as individuals that is greater than the percentage increases of those in the higher quartiles.  This is because those starting out in the labor force – and entering at relatively low wages – generally see a relatively fast rate of wage growth as they gain skills and are promoted.  This slows down over time, with older workers still receiving annual wage increases (in at least nominal terms) but not as large in percentage terms as young workers do.

Tracking the real wages of individuals is therefore of interest, but cannot then be used to track over long periods of time what has happened to average (or median) wages.  But for periods of several years, as well as for a comparison of growth in some early period to growth in a similar later period, tracking as in the chart above is of greater interest than what has happened to average or median wages of an always changing labor force with young workers entering and older workers leaving.  It is useful in comparisons of the growth in wages between presidential terms.

With this understanding, a number of points may be noted on individual wage growth in recent years:

a)  Individual wages in real terms were rising at a reasonable rate in the last few years of the Obama administration.  They then grew at a similar rate (not a faster rate) during the first three years of the Trump administration prior to the disruptions due to Covid.  In fact, the growth rate of overall individual wages (as measured at the medians) was 1.4% per annum in real terms during the final two years of the Obama administration (January 2015 to January 2017), and then the exact same 1.4% per annum in real terms during the first three years of the Trump administration (January 2017 to January 2020).

Trump has repeatedly claimed that wage growth (as well as many other things) were the highest ever during his administration, but that is not the case.  The most that Trump can rightfully claim is that he did not mess up the growth path that Obama had put the economy on following his reversal of the economic and financial collapse that began in 2008, in the last year of the Bush administration.

b)  With the onset of the Covid crisis in early 2020, individual real wages in fact rose despite the chaos of the lockdowns.  This might appear perverse, but in fact makes sense.  First of all, the rate of unemployment shot up to 14.8% – the highest it has been since the Great Depression (so Trump now owns this record).  But 85.2% remained employed, and were employed under often difficult personal circumstances given the easy spread of Covid and a lack of preparation by the Trump administration for the approaching pandemic.  (Trump instead repeatedly stated that all would be fine; that the virus would quickly disappear; and that banning flights from China had been a great success in stopping the virus.)

Those who remained in their jobs during this difficult period were often compensated well for their willingness to do so.  They received significant increases in their wages and/or bonuses.  The alternative of unemployment was also not as bad as it normally would be.  Aside from the safety aspect of protecting yourself from exposure to Covid, programs for the unemployed at the time were more generous and more easily available than they normally are, due to special legislation passed to address the exceptional circumstances of Covid.  Workers had this alternative, and firms had to respond.  Firms also received often generous support through various special programs during this period, that enabled them to pay higher wages to the employees who remained on the job.

Thus one sees in the chart above that individual real wages in fact rose in 2020, despite of (or perhaps one should say because of) the Covid disruptions.

c)  The Covid disruptions continued into 2021 and the first half of 2022, while the special support programs for firms and the unemployed were scaled back to normal.  But supply chains had been radically disrupted globally due to the crisis, did not start to recover until vaccines became widely available, and then required time to catch up and normalize.  And while supply was constrained, demand rose more quickly starting in 2021 as shoppers returned.  This demand was especially high both because of pent-up needs or desires for items not purchased in 2020 due to the lockdowns as well as caution due to the easy spread of the disease, while personal savings were exceptionally high and could now be spent.  Savings (and bank accounts) were high due both to the lack of spending in 2020 and to the extremely generous financial support packages passed under both Trump and Biden.

Global supply chains then worked themselves out by mid-2022.  The rate of inflation had been relatively high before then due to the high demand confronting limited supply, but inflation as measured by the CPI index for all items other than shelter then fell dramatically from July 2022 once supply was no longer constraining.

This inflation was then reflected in the decline in real wages from early 2021 to the trough in June 2022, as seen in the chart above.  From January 2021 to June 2022 the overall individual real wage fell at a rate of 3.5% per annum.  But probably a more appropriate measure would be for the period from January 2020 (immediately before the Covid crisis) to June 2022.  Over this period, the overall individual real wage fell at a rate of 1.2% per annum.

d)  Once Covid and its related impacts were largely over in mid-2022, real wages immediately began to grow again.  And indeed, they have grown since then (through at least to August 2024 – the most recent data available as I write this) at a rate of 2.5% per annum.  This is substantially faster than the pace they had grown under Trump (as well as under Obama before him), although this can be attributed in part to a recovery from the decline in the period ending in June 2022.

With this recovery, the overall individual real wage is now back on average to where it was in January 2021.  And the real wages of those in the lowest quartile and in the second quartile of the wage income distribution are now significantly higher than they have ever been.  But the levels as of August 2024 should not be seen as especially significant in themselves.  August is simply the most recent data available.  Rather, what is significant is the strong growth seen in real wages since June 2022, with no sign yet that that strong growth is abating.  Eventually that growth will likely return to the longer-term growth seen under Obama and then in the first three years of Trump, but it is not there yet.

e)  One should also note that all these figures are for the medians over a diverse population.  While the overall figures (whether measured at the means or the medians) have gone up and down, the actual real wages of any given individual can be quite different.  While the median individual real wage is now back to where it was in January 2021, this will not be true for everyone.  That diversity in experience needs to be recognized and acknowledged.

 

Biden inherited an economy that had suffered the sharpest downturn and highest unemployment since the Great Depression.  Managing the onset of the Covid pandemic in 2020 would have been difficult for even the most competent of administrations, but the Trump administration was far from the most competent.  The impacts of that crisis – on supply chains among other effects – continued into 2021 and the first half of 2022, and they led to falling real wages over this period.  But as supply chains normalized, real wages began to recover.  As of August 2024, overall individual real wages are back to where they were in January 2021.  But more importantly, those real wages have been growing at a rapid pace since mid-2022 and as yet show no sign of slowing down.

Trump’s Claims on the Economy and the Reality: A Comparison of Trump to Biden and Obama

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“We had the greatest economy in the history of the world.  We had never done anything like it. … Nobody had seen anything like it.”

Donald Trump, Republican National Convention, Milwaukee, July 18, 2024

A.  Introduction

Donald Trump is fond of asserting that the US “had the greatest economy in the history of the world” while he was president.  He claimed this when he accepted the nomination at the Republican National Convention (as quoted above); he claimed it when he debated President Biden in June; and it is a standard line repeated at his campaign rallies.  He also asserts that this is all in sharp contrast to the economy he inherited from Obama and to where it is now under Biden.  In a June 22 speech, for example, Trump said “Under Biden, the economy is in ruins.”

These assertions of Trump are not new.  He was already repeatedly making this claim in 2018 – in the second year of his administration – asserting that the US was then enjoying “the greatest economy that we’ve had in our history” (or with similar wording).  And he repeated it.  The Washington Post Fact Checker recorded in their database that Trump made this claim in public fora at least 493 different times (from what they were able to find and verify) by the end of his term in January 2021.

Repetition does not make something true.  And numerous fact-checkers have shown that the assertion is certainly not true (see, for example, here, here, and here, and for the 2018 statements here).  But readers of this blog may nonetheless find a review of the actual data to be of interest, and in charts so that the extent to which Trump is simply making this up is clear.

The post will focus on Trump’s record compared to that of Obama’s second presidential term (immediately before Trump) and Biden’s presidential term (immediately after).  The post will also show that even if you just focus on the first three years of his presidential term – thus excluding the economic collapse in his fourth year during the Covid crisis – Trump’s record is nothing special.  The collapse in that fourth year was certainly severe, and with that included Trump’s record would have been one of the worst in US history.  But Covid would have been difficult to manage even by the most capable of administrations.  Trump’s was far from that, and that mismanagement had economic consequences, but Trump’s record is not exceptional even if you leave that fourth year out.

This post complements and basically updates a longer post on this blog from September 2020.  That post compared Trump’s economic record not only to that of Obama but also to that of American presidents going back to Nixon/Ford.  I will not repeat those comparisons here as they would not have changed.  I will focus this post on just a few of the key comparisons, adding in the record of Biden.

B.  The Record on Growth

The two charts at the top of this post show how Trump’s record compares to that of Obama and Biden in the two measures most commonly taken as indicators of economic performance – growth in national output (real GDP) and growth in total employment (jobs).  This section will focus on Trump’s not-so-special record on growth, while the section following will focus on employment.

Trump has repeatedly asserted that economic growth while he was president surpassed that of any in history.  This is not remotely true in comparison to growth under a number of post-World War II presidents.  (Quarterly GDP statistics only began in 1947 so older comparisons are more difficult, but there were certainly many other cases further back as well.)  Giving Trump the benefit of excluding the economic collapse in 2020 during the Covid crisis, real GDP grew at an annual rate of 2.8% over the first three years of Trump’s presidential term.  But real GDP grew at an annual rate of 5.3% during the eight years of the Kennedy/Johnson presidency; at a rate of 3.7% during the Clinton presidency; 3.4% during Reagan; and 3.4% as well during the Carter presidency.  The 2.8% during the first three years of Trump is not so historic.  Carter’s economic record is often disparaged (inappropriately), but Carter’s record on GDP growth is significantly better than that of Trump – even when one leaves out the collapse in the fourth year of Trump’s presidency.

Nor is the Trump record on growth anything special compared to that of Biden or Obama.  As seen in the chart at the top of this post, growth under Biden over the first three years of his presidency matched what Trump bragged about for that period (it was in fact very slightly higher for Biden).  GDP growth then remained strong in the fourth year of Biden’s presidency instead of collapsing.  Growth in the Obama presidential term immediately preceding Trump was also similar:  sometimes a bit above and sometimes a bit below, and with no collapse in the fourth year.  It was also similar in Obama’s first term once he had turned around the economy from the economic and financial collapse he inherited from the last year of the Bush presidency.

Trump’s repeated assertion that “we had the greatest economy in the history of the world” was a result – he claimed – of the tax cuts that Republicans rammed through Congress (with debate blocked) in December 2017.  While the law did cut individual income tax rates to an extent (heavily weighted to benefit higher income groups), the centerpiece was a cut in the tax rate on corporate profits from 35% to just 21%.  The argument made was that this dramatic slashing of taxes on corporate profits would lead the companies to invest more, and that this spur to investment would lead to faster growth in GDP benefiting everyone.

That did not happen.  As we have already seen, real GDP did not grow faster under Trump than it had before (nor since under Biden).  Nor, as one can see in the chart at the top of this post, was there any acceleration in the pace of GDP growth starting in 2018 when the new tax law went into effect in the second year of his presidential term (i.e. starting in Quarter 5 in the charts).

The promised acceleration in growth was supposed to be a consequence of a sustained spur to greater private investment from the far lower taxes on corporate profits.  There is no evidence of that either:

The measure here is of fixed investment (i.e. excluding inventories), by the private sector (not government), in real terms (not nominal), and nonresidential (not in housing but rather in factories, machinery and equipment, office structures, and similar investments in support of production by private firms).

This private investment grew as fast or often faster under Obama (when the tax rate on corporate profits was 35%) as under Trump (when the tax rate was cut to just 21%).  Growth under Biden has also been similar, even though the tax rate on corporate profits remains at 21%.  This similar growth is, in fact, somewhat of a surprise, as the Fed raised interest rates sharply starting in March 2022 with the aim of slowing private investment and hence the economy in order to bring down inflation.

With the far lower corporate profit tax rates going into effect in the first quarter of 2018 and the Fed raising interest rates starting in the first quarter of 2022 – both cases in the fifth quarter of the Trump and Biden presidential terms respectively – a natural question is what happened to private investment in the periods following those changes?  Rebasing real private non-residential fixed investment to 100 in the fourth quarter of the presidential terms, one has:

The paths followed by private investment under Biden (facing the higher interest rates of the Fed) and under Trump (following corporate profit taxes being slashed) were largely the same – with the path under Biden often a bit higher.  They diverged only in the 12th quarter of each administration (the fourth quarter of 2019 for Trump, and the fourth quarter of 2023 for Biden).  Under Trump, private investment fell in that quarter – well before Covid appeared – and then collapsed once Covid did appear.  Under Biden, in contrast, it kept rising up until the most recent period for which we have data.

It is also worth noting that private investment during the similar period in Obama’s second term rose by even more than under Trump (and for a period faster than under Biden, although later it rose by more under Biden).  This was despite a tax rate on corporate profits that was still at 35% when Obama was in office.  There is no evidence the tax rate mattered.  And although not shown in the chart here, private investment rose by far more in the similar period during Obama’s first term (although from a low base following the 2008 economic collapse).

With similar growth in such investment in all three presidential terms (leaving out the collapse in 2020), the conclusion one can draw is that taxes at such rates on corporate profits simply do not have a meaningful impact on investment decisions.  Decisions on how much to invest and on what depend on other factors, with a tax rate on profits of 21% or of 35% not being central.  Nor did the Fed’s higher interest rates matter all that much to investment during Biden’s term.  With a strong economy under Biden, firms recognized that there were investment opportunities to exploit, and they did.

The far lower tax rate of 21% on corporate profits did, however, lead to a windfall gain for those who owned these companies.  Far less was paid in such taxes.  That is, the tax cuts did have distributional consequences.  But they did not spur private investment nor overall growth.  They did not lead to “the greatest economy in the history of the world”.

C.  The Record on Employment

As seen in the chart at the top of this post, growth in total employment was higher under Obama than it was under Trump, and has been far higher under Biden – even if you restrict the comparison to the first three years of the respective presidential terms.  In the face of this clear evidence in favor of Biden’s record, Trump has now started to assert that the growth in jobs under Biden was due to a “bounce back” in jobs following the collapse in the last year of his administration, or that they all went to new immigrants.  But neither is true.

First, as one can see in the chart there has been strong growth in the number employed not only early in Biden’s administration but on a sustained basis throughout.  And second, nor was the growth only in the employment of immigrants.  The Bureau of Labor Statistics provides figures from its Current Population Survey (CPS) of households on the employment of those who were born in the US (the native-born) and those born abroad (the foreign-born).  Leaving out the collapse in 2020, employment growth over the first three years of Trump’s presidential term of the native-born averaged 1.3% per year.  During the first three years of the Biden presidential term, employment growth of the native-born averaged 1.8% per year.  The growth in employment of the native-born was not zero under Biden – as Trump claims – but rather was faster under Biden than under Trump.  While there is a good deal of noise in the CPS figures (which will be discussed below), these numbers do not provide support for Trump’s assertion.

There has also been concern expressed in the media with what was interpreted as a “disappointing” growth in employment in July.  The BLS “Employment Situation” report for July, released on August 2, indicated that employment rose by an estimated 114,000 in the month.  This is a good deal below the average in the 12 months leading up to July of 209,300 per month.  But an increase of 114,000 net new jobs in the month is substantial.  While there will often be large month-to-month fluctuations, one should not expect more on average going forward.

With the economy basically at full employment (the recent uptick in the unemployment rate – to a still low 4.3% – will be discussed below), the number employed cannot grow on a sustained basis faster than the labor force does.  And the labor force will grow at a monthly pace dictated by growth in the adult civilian population (i.e. age 16 and over) and what share of that adult population chooses to participate in the labor force.  The labor force participation rate in July was 62.7% and has been trending downward over the past several decades.  While a number of factors are behind this, the primary one has been the aging of the population structure with the Baby Boom generation moving into their normal retirement years.

The BLS report (using figures obtained from the Census Bureau) indicates that the adult civilian population rose by an average of 136,800 per month in the 12 months leading up to July.  At a labor force participation rate of 62.7%, the labor force would thus have increased by 85,800 per month.  Without an increase in the labor force participation rate, employment cannot grow faster than this on a sustained basis going forward.

In the past 12 months, however, the BLS report for July indicates that the labor force in fact grew at an average pace of 109,700 per month.  How was this possible?  The reason is that although the labor force participation rate is on a long-term downward trend due to the aging population, there can be and have been fluctuations around this trend.  And a small fluctuation can have a significant effect.  The labor force participation rate one year ago in July 2023 was 62.6%, and thus the rate in fact rose by 0.1% from July 2023 to July 2024.  If the labor force participation rate in July 2023 had in fact been 62.7%, then the labor force in July 2023 would have been 167,410,000 rather than the actual 167,113,000, and the increase over the 12 months leading to July 2024 would have averaged 84,900.  Within round-off, this is the same as the 85,800 figure calculated in the preceding paragraph for a constant 62.7% labor force participation rate,  (With more significant digits, the labor force participation rates were 62.589% and 62.696% respectively, and a constant 62.696% participation rate would have yielded the 85,800 figure for labor force growth.)

We should therefore not expect, going forward, that monthly employment will increase on a sustained basis by more than about 90,000 or so, or even less.  It could be higher if the labor force participation rate increases (and a small change can have a major effect), but the trend over the past couple of decades has been downward – as noted already – due to the aging of the population.  How then, was it possible for employment to have gone up by an average of 209,300 per month over the past year?  And this was also a period where the estimated unemployment rate rose from 3.5% in July 2023 to 4.3% in July 2024, which “absorbed” a share of the increase in the labor force as well.

The reason for these not fully consistent numbers is that employment estimates come from the Current Employment Statistics (CES) survey of establishments where people are employed, while the labor force and unemployment estimates come from the different Current Population Survey (CPS) – a survey of households.  The CES is a survey of nonfarm employers in both the private and public sectors, and covers 119,000 different establishments at 629,000 different worksites each month.  The “sample” (if it can be called that) covers an estimated one-third of all employees.

The CPS, in contrast, is a survey of about 60,000 households each month.  There will only generally be one or two members of the labor force in each household, so the share of the labor force covered will be far less than in the CES.  If each household had two members in the labor force, for example, the total of 120,000 would be only 0.07% of the labor force –  a sharp contrast to the one-third covered in the CES.  There is therefore much more statistical noise in the CPS data.  There are also definitional differences:  The CPS will include not only those employed on farms but also the self-employed and those employed in households.  Also, a person with two or more jobs will be counted as one person “employed” in the CPS.  The CES, in contrast, counts the employees of a firm, and the employers will not know if the individual may be working at a second job as well.  Thus a person working two jobs at two different firms will be counted as two “employees” in the CES.

These definitional differences are not major, however, and in part offset each other.  An earlier post on this blog looked at these differences in detail, and how, in an earlier period (2018/2019) there was a substantial deviation in the employment growth figures between the estimates in the CES and the CPS.  This was the case even with the figures adjusted (to the extent possible) to the same definition of “employment” in each.  There is a similar deviation between the employment estimates in the CES and in the CPS currently, with this accounting for a strong growth in employment as estimated by the CES (of 209,300 net new jobs each month over the past year) even though the labor force has grown -according to the CPS – by a more modest 109,700 per month over this period.

The labor market remains tight, however, even with the rise in the estimated unemployment rate to 4.3% in July:

The unemployment rate fell rapidly under Biden, following the chaos of 2020.  It was at a rate of 3.9% or less for over two years (27 months), despite the efforts by the Fed to slow the economy by raising interest rates.  The unemployment rate was also 3.9% or less for a period under Trump (for 20 months).  But as one sees in the chart, during the first three years of Trump’s term it basically followed the same downward path as it had under Obama.  It then shot up in March 2020 when the nation was caught unprepared for Covid.  As with the other key economic indicators (the growth in GDP, in employment, and in private investment), the paths followed by the economy during the first three years of Trump’s term were basically the same as – although usually not quite as good as – the paths set during Obama’s presidency.  They all then collapsed in Trump’s fourth year.

Any unemployment rate near 4%, and indeed near 5%, is traditionally seen as low.  Economists have defined the concept of the “Non-Accelerating Inflation Rate of Unemployment” (NAIRU) as the rate of unemployment that can be sustained without being so low that inflation will start to rise.  While one can question how robust this concept is (as will be discussed below), the NAIRU rate of unemployment has generally been estimated (for example by the staff at the Federal Reserve Board) to be between 5 and 6%.  An unemployment rate of 4.3% is well below this.  While the unemployment rate has gone up some in recent months, it is still extremely low.

D.  The Record on Real Living Standards

Ultimately, what matters is not the growth in overall output (GDP) or in employment, but rather in real living standards.  Many have asserted that because of recent inflation, living standards have gone down during Biden’s presidential term.  This is not true, as we will see below.  But first we will look at inflation.

Inflation rose significantly early in Biden’s presidential term.  The pace moderated in mid-2022, but until recently prices continued to rise:

Inflation was less during Trump’s term in office but was even lower under Obama.  Indeed, consumer price inflation has been low since around 1997, during Clinton’s presidency, until the jump in 2021.  Why did that happen?

The rise in 2021 can be attributed to both demand and supply factors.  On the demand side, both Trump and Biden supported and signed into law a series of genuinely huge fiscal packages to provide relief and support during the Covid crisis.  The packages were popular – especially the checks sent to most Americans (up to a relatively high income ceiling) that between the various packages totaled $3,200 per person.  But the overall cost for all the various programs supported was $5.7 trillion.  That is huge.  The funds were spent mostly over the two years of 2020 (under Trump) and 2021 (under Biden), and $5.7 trillion was the equivalent of 12.8% of GDP over those two years.  Or, as another comparison, the total paid in individual income taxes in the US in the single year of FY2023 was “only” $2.2 trillion.

While there was this very substantial income support provided through the series of Covid relief packages, households were limited in how much they could spend – out of both these income transfers and their regular incomes – in 2020 due to the Covid pandemic.  One went out only when necessary, and kept only to shopping that was necessary.  This carried over into early 2021.  But people could become more active as the Biden administration rolled out the massive vaccination campaign in the first half of 2021.  People then had a backlog of items to buy as well as the means to do so from what had been saved in 2020 and early 2021.  Demand rose sharply, and indeed Personal Consumption Expenditures in the GDP accounts rose by more in 2021 (by 8.4%) than in any year since 1946 (when it rose by 12.4%, and for similar reasons).

But at the same time, supply was constrained.  Supply chains had been sharply disrupted in 2020 worldwide due to Covid, and took some time to return to normal.  There was then the additional shock from the Russian invasion of Ukraine in February 2022, leading oil and many other commodity prices to spike.

Supply chains did, however, return more or less to normal early in the summer of 2022.  And as they did, one saw a sudden and sharp reduction in pressures on prices, in particular on the prices of goods that can be traded:

This chart shows the annualized inflation rates for 6-month rolling periods (ending on the dates shown) for the overall CPI, for the shelter component of the CPI, and for the CPI excluding shelter.  The overall inflation rate rose from an annualized rate of 3.2% in the six months ending in January 2021 (the end of Trump’s term) to a peak of 10.4% in the six months ending in June 2022.  It then fell remarkably fast, to an annualized rate of just 2.6% in the six months ending in December 2022.

This sudden drop in the inflation rate is seen even more clearly in the CPI index of prices for everything but shelter:  The annualized rate fell from 12.4% in the first half of 2022 (the six months ending in June) to a negative 0.2% rate in the second half of 2022 (the six months ending in December).  Why?  There was not a sudden collapse in consumer or other demand.  Rather, supply chains finally normalized in the summer of 2022, and this shifted pricing behavior.  When markets are supply constrained (as they were with the supply chain problems), firms can and will raise prices as competitors cannot step in and supply what the purchaser wants – they are all supply constrained.  But as the supply chains normalized, pricing returned to its normal condition where higher demand can be met by higher production – whether by the firm itself or, if it is unwilling, by its competitors.  It is similar to a phase change in conditions.

Shelter is different.  It covers all living accommodations (whether owned or rented), and as has been discussed in earlier posts on this blog (see here and here), the cost of shelter is special in the way it is estimated for the CPI.  It is also important, with a weight of 36% in the overall CPI index (and 45% in the core CPI index, where the core index excludes food and energy).  The data for the shelter component of the CPI comes from changes observed in the rents paid by those who rent their accommodation, and rental contracts are normally set for a year.  Hence, rental rates (and therefore the prices of the shelter component of the CPI) respond only with a lag.  One can see that in the chart above, with the peak in the inflation rate for shelter well after the peak in the inflation rate for the rest of the CPI.

Since mid-2022, the rate of inflation as measured by the overall CPI has generally been in the range of 3 to 4% annualized.  Increases in the cost of shelter have kept it relatively high and above the Fed’s target of about 2% per annum.  But as seen in the chart, it has recently come down – falling to an annualized rate of 2.5% in the six months ending in July.  For everything but shelter, the rate in the six months ending in July was only 1.4%.

One question that some might raise is whether the very tight labor markets – with an unemployment rate that was 4% or less until two months ago – might have led to the inflation observed.  The answer is no.  As noted above, inflation in all but shelter fell suddenly in mid-2022, falling from a rate of 12.4% in the first half of the year to a negative 0.2% in the second half, even though the unemployment rate was extremely low at 4% or less throughout (and only 3.5 or 3.6% in all of the second half of 2022).  Unemployment has remained low since while inflation has come down.  If the cause was tight labor markets, then the rate of inflation would have gone up rather than down.

Similarly, inflation as measured by the CPI was not high in 2018 nor in 2019 when labor markets were almost as tight during Trump’s presidency – with overall inflation then between 2 and 3% on an annual basis.  Nor did inflation go up during the similarly tight labor market of 1999 and 2000 during the Clinton presidency:  CPI inflation was generally in the 1 1/2 to 3 1/2 % range during that period.  All this calls into question the NAIRU concept, with its estimate that an unemployment rate below somewhere in the 5 to 6% range will lead to pressures that will raise the rate of inflation.

Managing inflation coming out of the chaos of 2020 was certainly difficult.  Inflation spiked in most countries of the world following the Covid crisis, reaching a peak in 2022.  But the rate of inflation has since come down as supply conditions normalized.  That does not mean that the absolute level of prices came down, only that they were no longer increasing at some high rate.  Wages and other sources of income will then adjust to the new price levels, and what matters in the end is whether real levels of consumption improve or not.  And they have:

The chart shows the paths followed for per capita real levels of personal consumption expenditures, as measured in the GDP accounts, during the presidential terms of Trump, Biden, and the second term of Obama.  The path followed under Trump was basically the same as that followed under Obama – until the collapse in the last year of Trump’s term.  The path followed under Biden has been substantially higher than either.  It was boosted in his first year as the successful vaccination campaign allowed people to return to their normal lives.  They could then purchase items with not only their then current incomes, but also with the savings they had built up in 2020.  But even if one excludes that first year, the growth under Biden has been similar to that under Obama and under Trump up to the collapse in Trump’s fourth year.

Once again, there is no basis for Trump’s claim of the “greatest economy”.

E.  Summary and Conclusion

The economy during Trump’s presidency was certainly not “the greatest in the history of the world”.  Nor was it even if you leave out the disastrous fourth year of his presidency.  Covid would have been difficult to manage even by the most capable of administrations, and Trump’s was far from that.  Instead of preparing for the shock this highly contagious disease would bring, Trump’s response was to insist – repeatedly – “it’s going to go away”.

Trump’s economic record was certainly nothing special.  Real GDP grew as fast or faster under Obama and Biden as it had under Trump.  Trump insisted that growth would be – and was – spurred by the tax cuts that he signed into law in late 2017 that slashed the tax on corporate profits.  But there is no indication of this in the data.  Nor is there even any indication that private investment rose as a result of the lower taxes.

Employment has grown far faster under Biden than it had under Trump, and also grew faster in Obama’s second term – even leaving out Trump’s disastrous fourth year.  Unemployment fell during the first three years of Trump’s term in office (before sky-rocketing in his fourth year), but here it just followed a very similar path to that under Obama.  For this, as with GDP and employment growth, perhaps the biggest accomplishment of Trump’s first three years in office was that he did not mess up the path that had been set under Obama.  And unemployment has been even lower under Biden.

Inflation was certainly higher in 2021 as the US came out of the Covid crisis.  Supply chains were still snarled, but there was pent-up demand from consumers who had had to avoid shopping in 2020 due to Covid and who also benefited from a truly huge set of Covid relief packages passed under both Trump and Biden.  Supply chains then normalized in mid-2022, sharply reducing pricing pressures for goods other than shelter.  Due in part to lags in how rental rates for housing are set (as they are normally fixed for a year) and then estimated by the BLS, the cost of the shelter component of the CPI came down more slowly than the cost of the rest of the CPI.  This kept inflation as measured higher than what the Fed aims for, although recently (in the last half year) it has come down again.  Most anticipate that the Fed will soon start to cut interest rates from their current high levels.  The inflationary episode resulting from the Covid crisis appears to be coming to an end.

There is thus no justification for the claim by Trump that “we had the greatest economy in the history of the world”.  Yet he has repeatedly asserted it, both now and when he was president.  Why?  Stephanie Grisham, who served in the Trump administration as press secretary and in other senior positions, and who had been – by her own description – personally close to Trump, explained it well in a speech she made on August 20 to the Democratic National Convention.  She noted that Trump used to tell her:  “It doesn’t matter what you say, Stephanie.  Say it enough, and people will believe you.”

Many do appear to believe that the economy was exceptionally strong when Trump was president:  that it was “the greatest in history”.  But that is certainly not true.  Facts matter; reality matters; and a president needs to know that they matter.