Some people think that foreign direct investment into the United States has surged as confidence in the American economy has risen under Mr. Trump’s administration. The data do not support such a supposition. From BEA:
NIIP is the difference between US holdings of assets abroad, minus foreign holdings of US assets. Shown below is the ratio of NIIP to GDP.
With industrial production continuing its dive in October, we have a mixed picture of economic activity.
As I noted in yesterday’s post, in Mr. Trump’s speech at the Economic Club of New York Tuesday, he made a mysterious claim:
…we’ve added nearly $10 trillion of new value to our economy. That’s in a short period of time. Remember, I only use numbers from the time of the election because I can’t go to January 20th. It’s not fair. We picked up tremendous stock market and economic numbers. They actually went wild the day after I won.
I puzzled over the $10 trillion figure. Reader Joseph has conjectured that Trump was working off the Wilshire 5000 index, in which each point equals roughly a billion dollars of capitalization. Indeed, the change in the index from the day before the election and latest is $10.0 trn. However, the Wilshire 5000 is not comprehensive, and includes equities held by nonresidents. Let’s compare to the Fed’s Flow of Funds data to the Wilshire 5000.
Figure 1: Value of equities held by households (blue), Wilshire 5000 (brown), both end-of-quarter, in billions of dollars, on log scale. Source: Federal Reserve Board Flow of Funds, and Wilshire Associates, both via FRED, and author’s calculations.
What is the implied change in value of equities from before the election to 2019Q3 held by Americans? This is shown in Figure 2.
Figure 2: Value of equities held by households according to Flow of Funds (blue), Wilshire 5000 (brown), both end-of-quarter relative to end-of-quarter 2016Q3 in billions of dollars. Flow of Funds estimate for 2019Q3 is based log-log first differences regression using SP500 for extrapolation. Source: Federal Reserve Board Flow of Funds, and Wilshire Associates, both via FRED, and author’s calculations.
End-of-quarter Wilshire 5000 figures indicate $8 trillion change, while corresponding Flow of Funds iindicate only $4.6. This differential at end-2019Q3 suggests that Mr. Trump’s estimate is nearly double the actual change in household equity holdings.
So, I re-iterate, whatever happened to fact checking economic statistics in the White House?
From Mr. Trump’s speech at the Economic Club of New York yesterday:
…we’ve added nearly $10 trillion of new value to our economy. That’s in a short period of time. Remember, I only use numbers from the time of the election because I can’t go to January 20th. It’s not fair. We picked up tremendous stock market and economic numbers. They actually went wild the day after I won.
Should he? FRB Minneapolis Fed President was at UW Madison today, and stated:
“The fact that the yield curve is now uninverted gives me some indication that we have taken the brakes off the economy,”
The Trump economic policy regime (if it can be called that) has provided several “natural experiments”. Do corporate tax rate reductions “pay for themselves”? Does expansionary fiscal policy at full employment lead to large increases in output? Does increasing trade protection necessarily lead to an increase in the trade balance? Does a bellicose and confused trade negotiating stance accelerate fixed investment? I think the answers are No, No, No, and No. On this last point, see Altig et al. on Macroblog:
Consider the rest-of-the-world… Who’s going to pick up the slack this time?
From the Highlights of a new CBO study:
shouldn’t it be doing something about the Russian Federation as well?