By Josh Zumbrun
Even before Donald Trump's inauguration, he had already
accomplished something that bedeviled his predecessor, President
Barack Obama, for eight years: awakening the economy's "animal
spirits."
A range of economic gauges climbed, from business and consumer
confidence to the financial markets, as optimism surged,
particularly among Republicans. The momentum was propelled by Mr.
Trump's campaign promises, including repealing and replacing Mr.
Obama's health care law, overhauling the corporate tax code,
rolling back regulations and jolting the economy with $1 trillion
in infrastructure spending.
As his first 100 days in office draw to a close, that energy
stands as Mr. Trump's main economic accomplishment. Though he has
dialed back some regulations by executive order, many of the
economic-policy pledges have yet to be fulfilled.
"In the meantime, the only engine for growth is going to be the
private sector and its confidence in the new management team," said
Bill Dunkelberg, chief economist at the National Federation of
Independent Business. Going forward, "Legislative progress is
essential."
For over 40 years, the NFIB has surveyed small businesses to
measure their economic optimism. The postelection surge propelled
its index to levels seen only twice before: for a stretch in 2004,
after President George W. Bush enacted his second large tax cut
package, and in 1983 and 1984, the era that President Ronald Reagan
had proclaimed "Morning in America."
But those upswings came after major legislative victories.
Today's economic acceleration came before Mr. Trump even took
office, leaving open the question of whether it can be
sustained.
Scott Anderson, chief economist of the Bank of the West,
describes the sentiment surge as "blind hope that policy changes
put forward by the new administration will shake up the
unsatisfactory status quo."
The question many observers ask is whether the optimism marks
the beginning of a new era for the U.S. economy, or whether it will
prove a fleeting moment of false promise.
Mr. Trump had vowed in his first 100 days to fight for the
passage of 10 broad legislative measures, including the repeal of
the health law, the infrastructure package, middle-class tax
relief, lower corporate tax rates and new child-care and elder-care
tax deductions.
None of the 10 has passed Congress.
The first attempt to rewrite the health law failed in Congress,
sunk by intraparty disagreement among Republicans that meant the
bill never even reached the House floor for a vote.
The fate of tax reform is uncertain -- the Republican party
appears deeply divided over whether to offset cuts in tax rates
with proposals that could be unpopular, such as taxing imports and
exempting exports.
Mr. Trump proposed cutting the corporate tax rate to 15%, and
lowering personal rates as well, while also eliminating deductions
for state and local taxes. The proposal faces a challenging road
through Congress, where the plan likely would require at least some
Democrats to back it.
The infrastructure plan faces hurdles, too -- how much to
increase U.S. deficits to fund the investments. And Mr. Trump's
proposal to ramp up military spending needs a funding
mechanism.
"Clearly, President Trump is taking a page right out of
President Reagan's playbook, talking about tax reform, less
government regulation, military spending," said KC Mathews, the
chief investment officer of UMB Bank in Kansas City. "But can you
use the same policy in a different part of the [economic] cycle and
expect the same efficacy?"
When Mr. Reagan took office, taxes were much higher, leaving
more room to cut. The national debt was much lower, meaning there
was perhaps more willingness from Congress to increase government
borrowing. The nation was far less polarized, too, meaning it was
easier for representatives and senators of different parties to
come together in legislative majorities.
Mr. Reagan would later preside over large declines in inflation,
which positioned the Federal Reserve to begin a campaign of highly
stimulative interest rate cuts, adding further fuel to growth. This
time, inflation and interest rates are low from the get-go, meaning
little prospect of added economic juice, and the Fed has embarked
on gradually raising rates.
For now, the optimism largely remains.
The Dow Jones Industrial Average sat below 18000 the week before
the presidential election. It soared after the election, crossing
the 19000 threshold before the end of November, and climbing above
20000 a few days after the inauguration.
On March 1, the index closed above 21000 for the first time and
remains near that level today. U.S. households collectively owned
corporate equities valued at around $25 trillion last year, so the
16% increase since the election amounts on paper to between $3
trillion and $4 trillion in new wealth. If it endures, it is a
meaningful increase, regardless of what happens legislatively.
But many traditional economic indicators have yet to show much
movement. The pace of job growth has been little different than
under President Obama. Retail sales dipped in February and March.
Economic growth for the first quarter is widely estimated to have
been weak.
While the large accomplishments promised on the campaign trail
have remained elusive, the president has taken smaller steps to
chip away at regulations that many in the business community had
found counterproductive.
Mr. Trump and his allies in Congress have used a previously
obscure law -- the Congressional Review Act -- which allows a
simple majority in Congress to pass laws overturning recently
passed regulations. Mr. Trump signed bills that undid regulations
on the coal industry, government contracting and drug testing that
were implemented late in Mr. Obama's tenure.
Mr. Trump also signed orders approving the Keystone XL pipeline
and expediting environmental review for energy and infrastructure
projects.
"Already, we have seen the new administration make pro-business
moves, particularly regarding regulations, that have helped to keep
sentiment elevated," said Chad Moutray, chief economist at the
National Association of Manufacturers.
Others say that just because major economic policy changes
didn't arrive as promised, they could still be around the
corner.
"The logic would dictate that Republicans want something to take
to their voters in 2018," said Gus Faucher, chief economist of PNC
Bank in Pittsburgh. "That argues for tax cuts and infrastructure in
2018."
Write to Josh Zumbrun at Josh.Zumbrun@wsj.com
(END) Dow Jones Newswires
April 27, 2017 05:44 ET (09:44 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.