What is in store for the economy in 2017?
It’s a question on the minds of many since the election of Donald J. Trump. To the surprise of economists, who expected a financial panic if Trump were elected, Wall Street has applauded his victory with a 9 percent gain in stocks since the November election. It’s the highest post-election market bounce since Dwight D. Eisenhower in 1953.
Like many retirees, I’ve been wondering how a Trump economy will affect my little nest egg, which has benefited from the Obama economy. There is an irony that, while Republicans are generally regarded as pro-business, their record of managing the economy is not encouraging.
As economics writer David Leonhardt recently noted in The New York Times, over the last half century, the economy has grown 3.1 percent under Democratic presidents and 2.5 percent under Republicans. The last two Republican presidents (both Bushes) ended their terms with recessions, while Democrats Clinton and Obama presided over robust expansions.
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“There are reasons that the modern version of Republican economics hasn’t worked so well,” Leonhardt wrote. “It takes the powerful ideas behind market-based capitalism to an extreme, where they often stop working.” Like tax cuts.
To get a perspective on the local economy, after New Year’s I attended a panel discussion in Durham by four North Carolina economists hosted by the N.C. Chamber of Commerce. They foresee a favorable economic climate if three Trump priorities work out as proposed: corporate tax cuts, business deregulation and investment in highways, transit and other infrastructure spending.
But the forecasters also saw bad news – that a recession is likely in the next year or two, and that any positive impact of Trump’s pro-business policies would come afterward. “I would be surprised if the lift we get out of this doesn’t come until after the next inevitable recession, whenever it may be,” said Mark Vitner, senior economist at Wells Fargo in Charlotte.
Here are other observations from the economists:
▪ Economic growth in North Carolina in 2017 will continue to be strong. “I think North Carolina will grow faster than the nation in 2017, as it did in 2016,” said Mike Walden, economics professor at N.C. State. Urban counties have accounted for most of the state’s growth since Great Recession, but in 2016, rural counties had the fastest job growth, largely because of tourism.
▪ But growth, both in the state and nation, will be more in the 2 percent range, not the 4 percent promised by Trump.
▪ Home prices will continue to rise, especially in Charlotte and Raleigh-Durham. “These markets have been characterized by a real shortage of the supply of housing, which has driven prices up faster than the national rate during this past year,” said John Connaughton, an economist at UNC-Charlotte.
▪ Young adults are living with their parents at record levels, resulting in historic lows in first-time home buying. “The housing sector would do a lot better if the millennials would start buying homes,” said Harry Davis, professor of finance, Appalachian State University.
Most surprising to me was these experts’ assessment of the damage caused to the state’s economy by HB2, the so-called bathroom bill that bars local governments from enacting protections for gays, lesbians and transgender people.
Wherever I go, I hear about our bathroom issue.
Mark Vitner, Wells Fargo
The economists warned the assembled 900 businesspeople in the room that the damage from HB2 is extensive and long-lasting: “I do conferences like this all over the country,” said Vitner, the Wells Fargo economist. “Wherever I go, I hear about our bathroom issue. I go to the state of Arizona, and they say thank you, thank you for taking us off the most-hated state list.”
Added Connaughton. “Even if we change the law, we’re going to have to live with this for a few more years before some other state does something as stupid. Every single economic development project, we’re in competition with somebody else, and all they have to say is ‘HB2,’ and then we’re off the table.”
The economists said the only solution is to repeal the law. But that’s harder to do than say. The General Assembly failed to repeal HB2 in December because of a split among Republicans. As Connaughton pointed out, HB2 is a big issue only in Charlotte, Raleigh, Greensboro and Durham, the urban areas losing businesses, conferences and sports championships.
“This is a big rural-urban divide,” he said. “That’s what’s going to make it really hard to repeal, because only part of the state is suffering.”
Ted Vaden, former editor of The Chapel Hill News, can be reached at firstname.lastname@example.org