However, I think the reality is somewhat more complicated in ways that are not so traditional.
For Trump, this economy looks like a mirror image ofthe one he inherited in 2017.
Those factors leave the new administration in a tougher position than it may initially appear.
The first is the stumbles of the global manufacturing sector.
It appears to have traded overinvestment in its property sector for overinvestment in its industrial sector.
The labor markets are another obvious source of anxiety.
Yes, the unemployment rate sits at just 4.1%, only a bit higher than its multidecade low.
The slowdown in labor markets is important.
Put simply,housing is a complete mess.
America’s housing market simply cannot operate normally withmortgage rates this high.
Mortgage purchase demand has been flat since September 2023.
Meanwhile, lending standards on residential mortgages have generally been tightening in recent years.
By contrast, the last time Trump assumed office, mortgage lending standards were improving.
Historically, a new administration starts off by doing something tangible.
Nominal interest rates are higher than they were at the time of Bush’s 2003 tax cut.
So what options does the Trump team have?
I can think of two.
First, it ought to recognize that the age of abundance no longer exists.
you’re able to’t do everything.
You must pick and choose which priorities are the most important.
For the time being, this probably means trying to phase out orcancel planned spendingfrom the Biden spending bills.
While this would be difficult to do given the tight Congress, there are things Trump could do unilaterally.
One target could be the roughly $200 billion designated for the Energy Department’s Loan Programs Office.
The Trump administration could shut off the spigot.
Politically, I think the trade-off makes sense for Team Trump.
After all, Democrats targeted this spending to battleground states like Georgia and Arizona.
The results were clear: Economic development was not sufficient to deliver the states to Vice President Kamala Harris.
People would likely prefer lower rates instead the benefits are more widespread.
Interest rates are a blunt tool, having a broad impact on the economy and financial markets.
Second, I wonder whether Trump can provide a continued lift to animal spirits.
Rightly or wrongly, there is confidence in the marketplace now that Trump has won.
Our nearby table shows the performance of various asset classes one day after the past several presidential elections.
What’s different about the latest market reaction relative to the last time Trump was voted into office?
That does not strike me as particularly inflationary.
This can work to Trump’s advantage.
This is one reason the building out of Trump’s economic team is so important.
This time, the slimmer House margin means the agenda will be driven more by the White House itself.
Given the stock-market reaction, it’s clear thatpicking Scott Bessent was well received.
For the financial press, it is worth being honest.
Things are not as cut-and-dried as “Trump is inheriting a strong economy.”
Across a variety of dimensions, the picture appears quite challenging.
After all, if things were so great, why did the incumbent party lose in the first place?
Neil Duttais head of economics at Renaissance Macro Research.
