US Economic Growth Being Hit By Volatility At Home And Abroad

Three months into his administration, President Trump appears to be running into reality. Political changes at home are much more difficult to achieve than previously thought. And abroad, there are serious developments and volatility beyond what he might have foreseen.

All of that has smudged his palette and, consequently, makes the picture a lot less clear. Following the initial euphoria, US economic growth remains lackluster. And uncertainty as to whether the Trump administration can pass key reforms, despite controlling both the Senate and the House of Representatives, are making markets somewhat edgy. The stock market is looking for evidence that U.S. corporate earnings will remain robust and that policies on tax reform, regulation (or, rather, deregulation) and infrastructure will gain lawmakers' approval.

Recent economic data has been somewhat disappointing. In March, the economy saw just 98,000 jobs added – only slightly more than half the 180,000 expected by economists. And retail sales numbers have also been timid, while housing start numbers and industrial production both fell short. Voter confidence in Trump has also fallen sharply.

Meanwhile, confidence in the American economy is at its lowest level for five months, according to the Gallup organization. Gallup's indicator has returned to the level it was at just after President Trump was elected. "Americans' assessments of the current state of the economy appear to have had a strong connection to the trajectory of the Dow Jones industrial average in recent months," wrote Gallup analyst Justin McCarthy. "Positive perceptions of the economy's current health peaked in early March after the stock market made strong gains in January and February, but have since retreated some as the market slipped. Americans' outlook for the economy's future continues to struggle," he said.

The American economy was initially seen moving ahead later this year, but that would change if Trump's tax reform promises fail. Expectations of growth had been driven by the promise of tax cuts with the consequent boost to consumer and business confidence. The dollar has benefited from such expectations and interest rates were expected to rise.

Campaign promises also included taking apart the huge Dodd-Frank financial regulations, and repealing and replacing President Obama's Affordable Care Act. Treasury Secretary Steven Mnuchin told the Financial Times the administration's plan to roll out tax reform would likely slip as a result of the Republican-led healthcare overhaul bill. Finalizing a tax plan that could be signed by President Donald Trump by August was "highly aggressive to not realistic at this point," he said. Mnuchin had previously promised to deliver a tax plan to the president by then. However, he believes the tax reform program will be complete this year.

In recent weeks, the administration has said it has re-prioritized efforts to pass a health care bill ahead of tackling tax policy. Trump said last week that one of the reasons is that he's relying on savings from the health bill to support the tax plan.

Meanwhile, the hurried manner in which Executive Orders were signed and the backtracking caused to the administration by having its travel ban on certain countries challenged in the courts was hardly a polished performance. Accusing the previous administration of spying on him without any evidence also does nothing to build trust and admiration in the United States, by far the most important democracy in the world, which simply has to stand for decency, honesty and fairness.

Outside of the US, elections in Britain may give the UK Prime Minister a mandate to push for a harder Brexit which will mean two extremely unpleasant years of negotiations with the EU and more volatility. Then there are elections in France which could, conceivably, lead to the presidency of Marine Le Pen. As with President Trump, the presidency of Le Pen would be unlikely to see few of the 'promises' she is making put into practice. There's something about sitting in the office where the buck stops that leads elected officials to pull back from the brink. Fortunately.

Then there's the situation in Syria. Was Trump's order to fire 59 missiles at an airfield in the country following the gassing of civilians a signal of more to come or an admission that options are limited? Will relations with Russia further deteriorate? How far is Trump willing to go to rein in the apparently crazy regime in North Korea? Then there is the promised review of the Iran nuclear deal framework signed by the United States, the United Kingdom, Russia, France, and China—plus Germany) and the European Union.

Stability and economic growth? For the moment, don't hold your breath.