The Economy in Transition


  • The U.S. economic landscape is still running under its long-term potential and could benefit from policies designed to boost the economy’s productivity and its potential growth rate.
  • Based on the LEI, the economy President-elect Trump is inheriting from President Obama is most like the one former President Kennedy inherited from President Eisenhower in 1961; unlike Kennedy, Trump is not inheriting an economy that is in a recession.

In a key speech last week (November 14 - 18, 2016), Janet Yellen, Chair of the Federal Reserve (Fed) testified before the Joint Economic Committee (JEC) of Congress, further preparing markets for a Fed rate hike as soon as the next Federal Open Market Committee (FOMC) meeting in mid-December.

In Yellen’s prepared remarks, she noted that “The U.S. economy has made further progress this year toward the Federal Reserve’s dual-mandate objectives of maximum employment and price stability.” During the Q&A with members of Congress, Yellen also provided some advice to Congress and the incoming Trump Administration’s transition team as they prepare to potentially propose and pass a fiscal stimulus package.

Yellen opined that the economy here in late 2016 is close to full employment, especially compared with early 2009, as Congress and the incoming Obama Administration were preparing a fiscal stimulus package to combat the impact of the Great Recession. Additionally, Yellen noted that policies that enhance productivity should be given consideration, especially given weak productivity growth in recent years. Yellen’s remarks last week were echoed by Fed Vice Chair Stanley Fischer as this report was being prepared for publication on Monday, November 21, 2016. We took a high level look at the fiscal policies under consideration by President-elect Trump in last week’s Weekly Economic Commentary, “Evaluating the Economics of the President-Elect” and discussed the recent lackluster performance of productivity in the U.S. economy in the Weekly Economic Commentary: “Building Blocks” from May 16, 2016.

This week, we will examine the economic conditions faced by President-elect Donald Trump compared with other new incoming administrations in the past 50 years or so. First, let’s define terms. By new incoming presidential administrations, we mean presidents starting their first terms in office:

· Kennedy 1961

· Johnson 1963

· Nixon 1969

· Ford 1974

· Carter 1977

· Reagan 1981

· Bush 1989

· Clinton 1993

· Bush II 2001

· Obama 2009

Although the health of the economy can be measured in many ways, we’ll use the output gap (how close actual gross domestic product [GDP] is to potential GDP) as a proxy for Yellen’s comment about full employment and the Leading Economic Indicators (LEI), which is one of LPL Research’s Five Forecasters. We’ll start with the LEI.