×

Obama's biggest parting gift to Trump may be the economy

President Barack Obama meets with President-elect Donald Trump to discuss transition plans in the White House Oval Office in Washington, U.S., November 10, 2016.
Kevin Lamarque | Reuters
President Barack Obama meets with President-elect Donald Trump to discuss transition plans in the White House Oval Office in Washington, U.S., November 10, 2016.

Donald Trump is heading to the White House with a pledge to revive the U.S. economy and put millions of Americans back to work.

Based on the latest economic data, much of that goal has already been accomplished by President Barack Obama. That includes Friday's employment report that showed the unemployment rate had dropped to a nine year low of 4.6 percent.

Americans voters' widespread anxiety about the economy played a major role in the 2016 election. Trump's broad promises to restore widely shared prosperity, with little policy details spelled out, helped him win what many saw as as upset victory.

The underpinnings of that popular economic anxiety, though, are well defined. Since peaking in 1979, American manufacturing employment has shrunk by a third — a loss of more than 7 million jobs. Millions more discouraged, able-bodied workers faced with shrinking job options have left the work force, apparently for good.

Yet millions more older workers approaching retirement have set aside savings only to cover less than a year's expenses. And the next generation is entering the workforce financially handicapped by unprecedented levels of student debt.

So it's no surprise that the incoming Trump administration is eager to quell that groundswell of household angst by promising to boost the pace of economic growth to levels not seen in a generation.

"Our most important priority is sustained economic growth, and I think we can absolutely get to sustained 3 to 4 percent GDP, and that is absolutely critical for the country," Steven Mnuchin, Trump's choice for Treasury secretary, told CNBC on Wednesday.

But if GDP growth alone is the benchmark for Americans' financial well-being, the Trump administration will inherit an economy that is well on its way to fulfilling his campaign promises.

Today, some eight years after the worst financial collapse since the Great Depression, many forecasters see the long-overdue recovery finally picking up steam. "The economy is starting to hit on almost all cylinders," Joel Naroff, chief economist at Naroff Economic Advisors, said after reviewing the latest report on GDP growth.

The Commerce Department on Tuesday boosted its estimate of third-quarter gross domestic product to a 3.2 percent annual rate, up from the previous estimate of 2.9 percent. That's just 8-tenths of a percent shy of Trump's GDP growth target.

Like most presidents, Trump's term in office will be measured by historians, at least in part, by his stewardship of the U.S. economy. American voters will also have a chance to weigh in when they go to the polls four years from now.

If the recovery continues to build momentum, will history credit Trump or Obama?

For his part, Obama has vigorously defended his economic record over the last eight years, starting with his administration's response to the worst economic crisis in nearly a century. That record includes signing the 2009 Recovery Act, reversing a wave of layoffs that peaked at more than 800,000 in a single month.

"Anybody who says we are not absolutely better off today than we were just seven years ago — they're not leveling with you," Obama said in February. "They're not telling the truth. By almost every economic measure, we are significantly better off."

Trump would not be the first president (or governor, or mayor) to take credit for the accomplishments of his or her predecessor. Much of the groundwork for the 1980s national prosperity of the Reagan administration, for example, was laid by the politically painful policy of double-digit, inflation-killing interest rates engineered by fiercely independent Fed Chairman Paul Volcker.

But jobs numbers and top line GDP numbers mask the much more complex impact of today's economic crosswinds on the financial well-being of American families, still recovering from the trillions of dollars of household wealth wiped out by the loss of foreclosed homes, investment savings and lost paychecks after the wave of U.S. mortgage lending fraud that sparked the 2008 global financial collapse.

To better assess the accomplishments and unfulfilled agenda of the Obama administration, and assess its place in history, CNBC.com analyzed a broad swath of data to compare the economic records of the last six presidents. We looked at a variety of measures, calculating the net change from the start of a president's term to the end, beginning with Jimmy Carter's inauguration in January 1977. (Our data is current as of July when the analysis was first done during the presidential campaign.)

Here are a dozen charts showing what we found.

With just a few weeks left before Obama leaves office, the overall economy continues to expand — slowly. As of the third quarter of this year, the U.S. economy is more than 16 percent bigger than when the president took office in 2009, adjusted for inflation.

That gain is slightly less than his predecessor, George W. Bush, and roughly half the GDP gain in percentage terms during the Reagan administration.

Carter, who served only one four-year term, produced an impressive 12 percent economic expansion in just four years. If Carter had been re-elected and kept up that growth pace, he would have had the third-best performance among the six presidents in our analysis. But Carter left office in the middle of a double-dip recession, a major reason for his defeat to Ronald Reagan in 1980.

George H.W. Bush, the other one-termer in our analysis, left office with only an 8 percent gain in GDP.

The biggest expansion of GDP came under President Bill Clinton, who presided over the 1990s technology boom, spurred by massive advances and investment in faster computers and the construction of the Internet Superhighway. When Clinton left office in 2001, the economy was nearly 35 percent bigger than when he moved into the White House in 1993.

Not surprisingly, any modern president's records on job growth closely track the overall growth of the economy on their watch. During the Clinton administration, for example, total payrolls grew by nearly 21 percent, slightly better than Reagan's 17 percent gain.

The Carter administration had the third-best record, boosting payrolls by 12 percent. If he had kept that up for a second term, he would have topped the list of job creators. Both Bushes produced the smallest gains, though Bush II spent his first term recovering from a brief recession in 2001.

The Obama administration, which walked into the White House the day after Inauguration in the midst of a tsunami of layoffs from the Great Recession, lost much more ground in its first term on employment. But eight years later, his administration presided over a stronger job market turnaround that his predecessor.

But the jobs gains of the Obama administration are only one measure of what economists call "the health of the labor market." If you can't find a job, the "official" statistics really don't matter.

That's why, since the 1990s, many American workers have left the labor force for a variety of reasons. Some are boomers who have retired; others have become so discouraged looking for a job that they've given up.

The government data-keepers closely track this "labor force participation rate." They call around every month to find out your job status. If you're still looking, you're still in the "labor force." If you've given up, you're not "participating" — and the Bureau of Labor Statistics drops you in a data bucket that's no longer counted as part of the official workforce.

This erosion of participation began shortly after Clinton left office, after steady gains during the Carter, Reagan and first Bush administration. There are multiple forces at work, but the steepest losses came during the Obama years.

Trump and his advisers are hoping that by bringing these "lost workers" back into the labor force, the economy will benefit from increased consumer spending, more wage earners paying taxes and fewer families relying on social assistance programs.

Economists are still unclear on just why so many people have left the workforce. And Trump and his advisers have offered little detail on how they plan to reverse the trend.


Second to having a job, American workers are most concerned about wages, which have stagnated during much of the recovery from the Great Recession. In real terms (adjusted for inflation), hourly compensation saw the biggest gains during the Clinton-era '90s boom, followed by the 1980s expansion under Reagan.

The second Bush administration had the third-strongest showing, followed by the Obama administration, which has seen the fastest wage gains during his second term.

Once again, Obama leaves his successor with a solid foundation for boosting wages. Tightening labor markets — both in regions and job categories — have forced employers to boost wages to find good workers to fill new jobs and to keep the ones already on their payrolls.

The recent rise in wages, though, hasn't lifted incomes for all households.

The gap between rich and poor Americans has been rising steadily for half a century, for reasons that economists and politicians still haven't sorted out.

That gap, as measured by the Gini ratio, a widely used measure of income distribution, began rising during the Reagan administration. Despite the Obama administration's focus on closing the income gap, it has continued to expand under his watch.

For Americans, economic well-being has traditionally included homeownership, a dream that was shattered for many with the collapse of the housing market in 2008. The last major downturn in housing dated to the Bush I administration, following the collapse of the savings and loan industry that had provided mortgages to American families for generations.

Home sales peaked in 2005 during the middle of the Bush II administration and bottomed early in Obama's first term. Sales have since recovered but are still at levels not seen since the early 1990s when Bush I was leaving office.

The housing crash also sent homeownership rates plunging, erasing the gains during the Bush I and Clinton administrations. Despite a recovery in the housing market and historically low mortgage rates, the homeownership rate has continued to fall during the Obama administration to levels not seen since the Carter era.

Trump has said little during the campaign about the plunge in homeownership or the ongoing debate in Congress about the federal government's role in promoting policies to support what many voters still consider a cornerstone of the American Dream.

Presidents are also judged for their management of taxpayers' money, and federal spending has become a major issue in recent presidential campaigns. Measured as a share of the overall economy, spending remained relatively steady — ranging from 18 to 22 percent of GDP — during the Carter, Reagan and Bush I administrations.

Thanks to a booming economy in the 1990s, spending as a share of GDP fell during the Clinton administration but began rising again under Bush II. When the Great Recession sent the economy in reverse, spending as a share of GDP soared when Obama took office, but has come back in line with historical trends.

Trump has proposed massive tax cuts and ambitious new federal spending to rebuild infrastructure. It remains to be seen how those promises will impact the federal budget — and whether he will be able to win the support of congressional GOP fiscal conservatives.


Obama has also presided over some of the biggest budget deficits in the last four decades, in part because of massive stimulus spending aimed at heading off an even deeper downturn. Of the six presidents, only Clinton returned a budget surplus during his last years in office, helped in part by a windfall of tax receipts from the dot-com investment bubble.

Those GOP "budget hawks" have been vocal critics of the Obama administration, which has presided over some of the biggest budget deficits in the last four decades, in part because of massive stimulus spending aimed at heading off an even deeper downturn. Of the six presidents, only Clinton returned a budget surplus during his last years in office, helped in part by a windfall of tax receipts from the dot-com investment bubble.

The Obama administration persuaded Congress to boost spending to blunt the impact of the financial collapse of 2008. Those deficits also added substantially to the pile of public debt outstanding, which now stands at roughly 100 percent of GDP. But the pile has been growing for 40 years.

Trump's promise to cut taxes and spend big on infrastructure to spur GDP growth — all without increasing the national debt — is reminiscent the Reagan administration's proposal to "grow out" of the inevitable short-term deficits produced by spending more and collecting less.

In theory, over the longer run a bigger economy should generate more taxable revenues, which would make up for lower tax rates and pay for more spending.

But the theory has yet to be proven. Reagan's budget policies were attacked as "voodoo economics" by his own vice president and successor, George H.W. Bush.

The level of public debt as a share of GDP roughly doubled during the Reagan and Bush I administrations, then fell during the Clinton era and began rising again under Bush II.

The strength of the economy can also be measured by the health of the private sector, which presidential candidates typically rely on for campaign contributions.

Based on one measure — total after-tax corporate profits — Bush II stands out. During his administration, profits soared, only to come crashing back with the collapse of the financial system. Still, profits more than doubled during his term, compared with 47 percent gains during the Clinton administration and 62 percent under Obama's watch.

Profits rose roughly 25 percent under Reagan and Bush I; they were up 37 percent under Carter.

For stock market investors, Democrats have clearly outperformed Republicans in the White House over the last 40 years.

Since the market bottomed in March 2009, the S&P 500 index has more than doubled under Obama. The index nearly tripled during the Clinton administration

Those gains compare with net losses of 45 percent under Bush II, gains of about 30 percent under Bush I and a 50 percent gain under Reagan.

Stock prices lost about 13 percent of their value during the Carter administration.