Trump Increasingly Awful. Macroeconomy Increasingly Good. Please Explain.

You've got to separate near-term from long-term, and macro from micro.

With each passing day, it becomes ever clearer that Donald Trump is absolutely terrible at presidenting. He screws up everything he touches, from renovating the reflecting pool to foreign wars—the failure of the Iran war is shocking in its depth, from the outcome itself to the failure of formerly embedded checks and balances to prevent a rogue president from dragging the country into such a catastrophe. He’s always operated from an alt reality, but of late, he’s sounded more megalomaniacal and crazy than ever. He recently compared himself favorably to Attila the Hun, Genghis Khan, Napoleon, Stalin, Mao and Hitler. He claimed superiority to Alexander the Great, the Caesars William the Conqueror, and Napolean, because “They didn’t have airplanes, right? You couldn’t travel around.”

And yet the economy is doing well.

Of course, I’m talking macro. This ‘Stack has consistently focused on rising distributional inequities, from near-term real wage declines as a result of spiking war-driven inflation (which is, ftr, coming down as we speak), to soaring equity values exacerbating our already high levels of wealth concentration. I’ve also focused extensively on the deep souring of consumer sentiment on the economy. I’m well aware of all these downsides and their connections to Trumpian ineptitude.

But it is no small thing—in fact it’s a huge and positive asset—that the overall economy has held up throughout this terrible economic stewardship. I’ll document some of the evidence for this claim and then offer a few thoughts as to how these two forces—awful president and good macroeconomy—can co-exist.

GDP remains on trend and the trend is, if anything, higher. The average yearly real GDP growth rate since Trump took office is about 2.2%. CBO tells us trend is slightly below 2%. Yes, they underestimate productivity growth, but this average since ‘25Q1 beats the Fed’s most recent trend GDP growth rate of 2%. And “core” GDP¹—taking out volatile components—is rising even faster since ‘25Q1, at 2.6%.

Productivity growth appears to have accelerated. GDP growth is the sum of labor force growth and productivity growth. We know labor-force growth has slowed, due to both Trump/Miller anti-immigrant policies and our aging workforce, so if the GDP trend is slightly up, then so must be that of productivity growth. Lo and behold:

The figure shows spiky productivity growth with a smooth trend cutting through it. The acceleration at the end is considered by most economists, myself included, as suggestive of a durable acceleration—i.e., not a blip—though it’s still too soon to tell. And this is largely before AI has permeated the economy. Some of this surely “capital deepening”—all that AI-related investment—but if it sticks, it will lift our growth potential.

The stock market has been strong, of course, if not bubbly. Shiller’s cyclically-adjusted price-earnings ratio stands at 41, against its long-term average of 19. Given how stretched valuations are, this one is a strength and a fragility.

Retail sales continues to power forward, even if you take out gas prices. Part of that is tax rebates, and part is surely K-shaped spending. But it suggests aggregate consumer spending is holding up. The job market has been a concern of mine, and it still is, especially re wage growth, but unemployment remains relatively low, as do layoffs, and hiring appears to have picked up in recent months, though not for long enough to retire our “low-hire, low-fire” diagnosis. Still, there’s no getting away from the fact that Trump hasn’t killed the labor market.

I could keep going, but check out this figure from GS Research. They put 37 indicators in the statistical blender and pour out a “current activity indicator” which summarizes the strength of the current US economy and assigns it to various components. Not to put too fine a point on it, but my point today is that their CAI positively correlates with Trumpian cray-cray.

How can this be?

Well, first, it’s clear that these two things—Trump awful; (macro)economy good—are true, so we are once again reminded that the president doesn’t have that much to do with the near-term overall economy which, absent shocks, behaves something like a perpetual motion machine wherein demand generates production which requires more demand (labor, capital) to keep the wheel spinning.

But we’ve had Trumpian shocks—tariffs, deportations, the war—so why haven’t they thrown things off track?

Re the war, as I note and have written, it did, in fact, at least temporarily whack real wage growth. But the price of oil never got as high as some feared, for reasons well-explained in this must-read WSJ piece. Abundant reserves and alternative supplies are part of the story, but China played a key role:

Chinese imports of oil fell by around three million barrels a day, yet there was little visible sign of disruption in the world’s second-largest economy and foremost manufacturing powerhouse.

In common with other big importers, Beijing drew from its vast strategic reserves and found other suppliers to cushion the losses from the strait. Refineries cut back production to conserve crude supplies.

But China, mindful of its dependence on foreign energy, has also reoriented its economy to use less imported oil: Electricity generation is increasingly powered by coal and renewables, and Chinese drivers have been enthusiastic adopters of electric vehicles, reducing demand for gasoline.

The tariffs added a percentage point to inflation, but we’re somewhat insulated as our imports of goods from abroad amount to just 11% of GDP. And, of course, the capex boom around AI and datacenters has been a strong source of growth, one that would likely be occurring no matter who was in the Oval.

I will offer two conclusions.

First, do not conclude that the macroeconomy is insulated from Trump’s presidency. It may be so in the near term, but there is longer-term damage underway. Let me count the ways:

—He and the Rs have made our fiscal outlook much worse, and this is already pressuring interest rates and will continue to do so, likely slowing longer term investment and growth.

—Trump’s disinvestment in R&D, science, renewables, education will likely have negative long-term consequences for innovation, future productivity, the environment, and energy supply.

—Same with his anti-immigration stance, which will not just mechanically dampen aggregate growth, but will do so for entrepreneurship and the future quality of our labor force.

—His alienation of our allies and trading partners threatens supply chains and raises the temperature re future, growth-draining global conflicts.

—The ignoring and thereby fomenting of financial bubbles threatens to generate growth-killing implosions.

—Maybe his corruption leaves the building when he does, but if not, it renders the office less effective in ways that undermine policy and more inclusive growth.

The second point is the near-term damage that’s already here. Not just the un-affordability generated by his inflationary policies and his budget policies that are actively making life less affordable, from cutting health and nutritional benefits to putting upward pressure on mortgage rates (figure below). But also, perhaps even more so, since the affordability crisis that he’s exacerbating pre-dated him, the opportunity costs of his disinterest in doing anything about the issue.

30-YEAR FIXED-RATE MORTGAGE (Mortgage News Daily)

In sum, what we have here is an economy that’s doing well, while most of the people in it are not. They’re telling pollsters and survey-takers that they’re very worried about their ability to make ends meet and, even more troubling, their kids’ futures. And they’re not only aware that nobody is trying to help them, but their faith in the system to do so is at an all time low.

In that context, and given the madness of the person who’s running this country and the failure of systemic checks to thwart him, such anxiety is justified, no matter what the macro-indicators say.

All of this has trenchant and consequential implications for Democrats, but I’ve gone on long enough for today. So, as usual, more to come…

1. I’m talking about “final sales to private domestic purchasers.”