Trump Economic Policies Likely to Spur Growth
January 24, 2017
Elliott D. Pollack
CEO, Elliott D. Pollack and Company
The election of Donald Trump has changed the outlook of the economy. The current stagnation narrative appears to be coming to an end. It’s axiomatic that different policies will have different results. While it is too early to be certain how Trump’s proposed economic policies will look by the time they are enacted, it is clear that Trump’s policies will contain lower personal and corporate taxes, less regulation and removal of some restrictions to credit creation. These changes are likely to spur the economy from its current slow growth trajectory. It’s likely that most of this will be felt in fiscal year 2018 and 2019. Such a boost to the economy will be interesting this late in the cycle. But, if Trump can stay out of a trade war and labor markets remain flexible, the new policies still should bear fruit. The result is likely to be stronger growth in Greater Phoenix. That being said, the third and fourth quarters of 2016 were weak at the metropolitan area level in terms of year-over-year employment growth. That should change as these new policies are enacted.
The real risks have to do with the timing of the change in policies. Historically, the policies that are proposed by the Trump administration have been followed in the early stages of a recovery following a recession. When Trump was inaugurated, the recovery/expansion was 91 months old. Given the current level of unemployment, such policies will create tight labor markets far sooner than those that were enacted earlier in recoveries. The bottom line, however, is that the economy should be stronger in fiscal 2017 and 2018 than was anticipated prior to Trump’s election.
The results of these policies, besides stronger GDP and employment growth, are also likely to be higher inflation as labor markets become tighter, higher interest rates, higher after tax corporate profits and tight labor markets, especially in construction. Strength can be expected in construction, manufacturing, and the usual suspects of education and health services, and professional and business services. A stronger national economy should also result in stronger population flows, something that has been absent in Greater Phoenix in this cycle. Such stronger population growth will result in more construction of single family homes, apartments, industrial, office and retail space.
While we do not expect population growth in Greater Phoenix to get back to its historic normal rate of above 3 percent, population flows should be stronger in the next few years when compared to the last few. As the job market tightens, consumer confidence is likely to be stronger. This should result in stronger consumer spending. Yet, it is unlikely that the Phoenix metro area can go another four years without a recession.
Out of the 33 major employment markets in the country, the Phoenix metro area will end up approximately 9th. While this is a satisfactory performance, it is certainly weak compared to the pre-2007 performance. As the economy strengthens nationally, it is our belief that the Phoenix metro area’s rank should improve.