Economists Look Ahead to Trump Era and See “Boatload of Uncertainty”

By John O. Harney

The New England Economic Partnership (NEEP) explored “What’s Ahead After This Historic Election?” at the group’s outlook conference held Jan. 17 at the Federal Reserve Bank of Boston.
Their general conclusion: New England’s economy will stay robust through 2017 and 2018 … but then watch out! (And that’s just economists—groups of scientists, multiculturalists, educators, philosophers and others would presumably voice similar cautions.)

Brandeis International Business School Senior Lecturer John Ballantine opened the NEEP proceedings by urging the crowd to reexamine its “confirmation bias,” noting that one district in Maine voted red and Clinton won New Hampshire by only about 2,700 votes.

NEEP’s frequent national forecaster, Moody’s Analytics Chief Economist Mark Zandi, reassured the audience that the U.S. is in the midst of its second-longest economic expansion in history, including a record-setting seven consecutive months of job growth, record-low layoffs and nearly full employment. It would take a lot to derail that in 2017, he said.

The conference theme—Trump’s election—is another story. Zandi was in London on election night and went to bed expecting a Clinton victory, only to take a call from his daughter in the U.S. who was crying over the results. He said he wouldn’t read too much into the post-election reaction in financial markets. Investors are responding to pledges of lower taxes, less regulation and deficit-financed government spending on the military, infrastructure improvements and other items, he said. But “there’s a boatload of uncertainty” here.

Tweets browbeating specific companies have made businesses anxious, Zandi said. And while U.S. policy since World War II has been to embrace the world, the Trump administration would use tariffs and other sticks with countries it sees as cheating. Zandi conceded that China and Mexico would probably retaliate, touching off a trade war. In addition, tough immigration standards will constrain growth in the U.S. labor force. We actually need more immigration, skilled and unskilled, he said. He added that immigrants tend to be more entrepreneurial, so immigration is the best way to increase productivity. Zandi suggested if you’re in the recession-prediction business, look out for the end of Trump’s term, when some of the most disruption (not in the current fashionable sense) will kick in.

Ross Gittell, chancellor of the Community College System of New Hampshire and NEEP vice president, noted that the New England economy has tracked the U.S. economy and should see strong growth in 2017 and 2018. But he too worried about uncertainty in the outer years of forecast.

New Hampshire posted the lowest unemployment rate in the U.S. at 2.5% and Massachusetts the third lowest rate in the U.S. at 3.3%. The New England average was 5% in 2015, down from a regional peak of 8.7% in 2010, and NEEP projected it would fall to 3.7% in 2018. That’s when things may go south, in part, because all that employment constrains room for more growth and, in part, because the Trump risks begin to kick in at that point. Among those risks, Trump’s anti immigration stands would deal big blows to New England’s already-vulnerable labor pool and the region’s  higher ed sector that relies so much on foreign talent.

States right?

Different states may meet different fates. For example, Trump could offer perverse pluses in Connecticut: tax cuts for the rich and more submarines for a defense buildup. Massachusetts could also benefit from the Pentagon spending, but could be hurt by changes to the Affordable Care Act (so-called Obamacare) as well as immigration policy.

Massachusetts also has net inflow of domestic and international millennials, said Alan Clayton-Matthews, associate professor of public policy at Northeastern University. An audience member asked why people in their 20s are migrating to Massachusetts, but people in their 30s are migrating out. Panelists didn’t seem to know. Bird suggested that New Hampshire is the opposite, losing people in their 20s who return in their 30s for a perceived quality of life.

Ryan Wallace, project director at the Maine Center for Business and Economic Research at the University of Southern Maine, noted that Maine employment won’t return to pre-recession peaks until 2018. The oldest state in the nation by median age, Maine is among the few states where deaths outpace births. But since 2010, Maine’s population has grown by 4,200—almost all through international migration. The state had been famous for welcoming Somalis to Lewiston and other cities. But more recently, Maine stories focus on cutting safety nets. On a different front, Maine’s governor has threatened cuts to the state workforce.

Independent economist Jeff Carr gave the Vermont forecast. “I don’t think there’s been a time where we’ve been more uncertain about where we’re going,” Carr said. He agreed that 2019 and 2020 will be the danger years. Among other risks, Vermont—like Maine and Rhode Island—gets a high percentage of funds from the feds, led by Medicaid.

Every New Hampshire industry is hiring, except government, partly because a declining school-aged population means less demand for teachers, according to Greg Bird, economist with the New Hampshire Center for Public Policy Studies. Bird also noted a serious divide between counties tied to Greater Boston and more rural counties, which are treading water, or even  still in recession. New Hampshire—like Maine and Vermont—hasn’t seen labor force growth from 2012 to 2015. Bird said the state’s prosperity is not sustainable because of its demography and already Granite State businesses are having trouble finding people to hire.

Rhode Island had the highest unemployment rate in New England in November at 5.3%. But that’s a far cry from the 9.1% it hit in November 2013. Edinaldo Tebaldi, associate professor of economics at Bryant University, noted that Gov. Gina Raimondo’s economic development emphasis includes attracting jobs from GE and Johnson & Johnson and proposing free tuition at the Ocean State’s public higher education institutions.

Patrick Flaherty, assistant director of research and information at the Connecticut Department of Labor, said employment is hitting record highs in Connecticut, though the state has recovered less than three-quarters of jobs lost in the recession. Healthcare has been a key employer in Connecticut, but is currently restructuring with hospital mergers. Also, the number of school-aged children is projected to keep shrinking, while the 65-and-over age groups, especially 85 and over, keeps growing. Also a Trump tax policy that favors high-income individuals could help Connecticut’s affluent population, as could the defense buildup: Connecticut is still fourth largest state in aerospace employment … and a major producer of submarines.

Song for Europe

In addition to regional economic forecasts, NEEP counts as part of its mission providing indepth discussions on key issues. This time around, some of that focused on the economic and political crises facing Europe—not unrelated to the Trump reflections.

Jeffry Frieden, professor of government at Harvard University, explained how confidence in government has collapsed and support for the European Union has plummeted. And the economy has been suffering a long time; for some, it may be not a lost decade, but a lost generation. In addition, poor Spanish are more likely to share values with poor Germans than with well-off Spanish. And, said Friedan, if the NEEP crowd thinks New England’s demography is threatening, the labor force constraints in Europe are even tighter.

Related Posts:

Talking About Jobs, Trade and Neighbors to the North, Eh?

Trafficking in Economic Forecasts

Powering a Slow Recovery

The Well-to-Do Are Doing Very Well … and Other News from New England Economists

The New Slow

Economists to Hold Conference at UNH at Manchester on “Millennials, Baby Boomers and New England’s Future”

NE Won’t Return to Pre-Recession Employment Until 2015, but Region’s Education Advantage Could Offer Economic Advantage

Recovery at Risk: New England Economic Partnership Releases New Outlook Forecasting Sluggish Bounceback


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