Trump bullish on 'blazing' economy but whose recovery is it?

As he rubs shoulders with leaders of the world's other major economies, Donald Trump is in a bullish mood about the U.S. recovery even if there are clouds on the horizon.

"Stock Market at all time high, unemployment at lowest level in years (wages will start going up) and our base has never been stronger!" the U.S. president tweeted at the start of a week which ends with his attendance at the G20 summit in Hamburg.

"No matter where you look, the economy is blazing," he said in a July 4 Independence Day speech, a day before heading to Europe.

Trump, who frequently complains the US media refuses to give him credit, can point to some heady figures since his unexpected election which was greeted gleefully on the stock markets.

The Dow Jones Industrial Average surged 17.2 percent since last November's election, while the broader S&P 500 gained 13.7 percent, and the tech-dominated Nasdaq 18.4 percent.

Banking stocks in particular soared amid promises the sector would see an easing of regulations put in place in the wake of the 2008 financial crisis.

The unemployment rate is only 4.3 percent while the trade deficit is shrinking with exports in May at their highest level in two years.

Even so, experts say Trump appears to be taking credit for accomplishments -- particularly on the jobs front -- whose foundations were laid by his predecessor Barack Obama.

And they also point out that Trump has little to show for in terms of policy, with the much-touted tax reforms and infrastructure spending program still just talking points.

Meanwhile, the promised health care overhaul, which includes a huge tax cut for the wealthy, is struggling to get approval in the Republican-controlled Senate.

"I would say it is still Obama's recovery," said Joseph E. Gagnon of the Peterson Institute for International Economics.

"Nothing of substance has changed yet, but markets are clearly focusing on what may change."

Growth forecasts cut

Trump swept to office after berating Obama's economic accomplishments, saying too many people were being left out of the recovery, and promising to rev up growth to four percent.

But the International Monetary Fund recently cut its growth forecasts for the United States due to the absence of any details of the proposals that prompted the fund to raise its forecast in January.

The IMF warned of "significant policy uncertainties" weighing on the outlook as it reverted to last year's projection that the economy will expand by 2.1 percent in 2017 and 2018, down from 2.3 percent and 2.5 percent, respectively.

The Congressional Budget Office also recently cut its forecast to 2.1 percent.

The IMF also questioned the administration's promise to accelerate growth to more than three percent -- the more modest goal now espoused by Treasury Secretary Steven Mnuchin -- although he says achieving that rate will take time.

International experience and U.S. history show only a few examples of economies achieving growth of that magnitude, and usually only after a recession when unemployment is high, the IMF said.

While the jobs situation is healthy, such low unemployment leaves little room for the economy to grow without fueling inflation, unless immigration increases to fill job openings.

Stagnant wages 

Companies throughout the economy are reporting difficulty finding skilled workers.

Wages have remained stubbornly stagnant, but if they begin to rise that could fuel inflation, limit corporate profits, and solidify the Federal Reserve's plan to raise the benchmark interest rate, which in turn will tend to slow growth.

Most data on the real economy show steady but sometimes uneven gains: GDP growth in the final three months of last year hit 2.1 percent, but slowed to 1.4 percent in the second quarter.

New car sales hit a record in 2016, but have fallen off sharply this year, while home construction and consumer purchases of big ticket items have seen ups and downs.

Activity indexes for the manufacturing and services sectors have continued to grow, but industry is worried by the uncertainty about the administration's policies.

Timothy R. Fiore, head of ISM's Manufacturing Business Survey Committee, said this week that uncertainty and Trump's repeated threats of trade wars weigh on the outlook.

"This uncertainty doesn't really help the business environment," Fiore said.

Gagnon told AFP some of Trump's proposals could boost the economy, while others could provide headwinds to growth.

"Tax cuts are still likely at some point, which would boost activity. On the other hand, trade actions also seem likely, and many of them could reduce activity," he said.

"Bottom line is considerable uncertainty, which is harmful but not having a big effect."