For new readers: I was very bearish on the economy when I started this blog in 2005 – back then I wrote mostly about housing (see: LA Times article and more here for comments about the blog). I predicted a recession in 2007, and then I started looking for the sun in early 2009, and I’ve been fairly positive since then (although I expected a sluggish recovery).
I’ve also been optimistic about next year (2017), with most economic indicators improving – more jobs, lower unemployment rate, rising wages and much more – and with more room to run for the current expansion. Also the demographics in the U.S. are becoming more favorable (see here for more on improving demographics).
Now Mr. Trump has been elected President. How does that change the outlook?
In the long term, there is little or no change to the outlook. The future is still bright! Although I’m concerned about the impact of global warming.
In the short term, there is also no change (Mr Obama will be President until January, and it takes time for new policies to be implemented).
The intermediate term might be impacted. The general rule is don’t invest based on your political views, however it is also important to look at the impact of specific policies.
I will probably disagree with most of Mr. Trump’s proposals for both normative reasons (different values), and for positive reasons (because Mr. Trump rejects data that doesn’t fit his view – and that is not good).
With Mr. Trump, no one knows what he will actually do. He has said he’d “build a wall” along the border with Mexico, renegotiate all trade deals, cut taxes on high income earners, repeal Obamacare and more. As an example, repealing the ACA – without a replacement – would lead to many millions of Americans without health insurance. And those with preexisting conditions would be uninsurable. This seems politically unlikely (without a replacement policy), but it is possible.
Since Trump is at war with the data (he rejects data that doesn’t fit his views), I don’t expect evidence based policy proposals – and that almost always means bad results. However bad results might mean higher deficits with little return – not an economic downturn. Until we see the actual policy proposals, it is hard to predict the impact. I will not predict a recession just because Trump is elected. In fact, additional infrastructure spending might give the economy a little boost over the next year or two. On the other hand, deporting 10+ million people would probably lead to a recession. We just have to wait and see what is enacted.
In conclusion: The future is still bright, but there might be a storm passing through.