As President Trump returns from Davos, let me first emphasize that he is at the top of the world, in terms of American performance and influence. And second, new data coming out today shows that the business investment boom in the US continues to accelerate.
In particular, the key non-defense capital goods category, excluding flight aircraft, which is essentially the core measure of business investment, is now up 9.9% year-on-year over the past three months. Almost double the twelve-month rate. And new orders are up 8.5% in the past three months, compared to 5.5% in the past year. These investments include machinery, equipment, computers and electronics.
I am sure that this increase in so-called capex is related to the immediate expenditure of 100% of the full costs, embodied in that one, big, beautiful bill, which was retroactively drafted after Mr. Trump’s inauguration on January 20 last year. It is yet another example of the success of the president’s policies. And this goes hand in hand with the revival of industrial production, both of consumer goods and business equipment.
And the rapid growth of GDP, which rose by 3.8% per year in the second quarter, 4.4% in the third and perhaps 5% in the fourth. That’s right, there’s a Trump boom going on. And it’s based on his policies of tax cuts, deregulation, drilling, baby, drilling, and mutual free and fair trade.
People always say that 70% of the economy is consumer spending. That may technically be true, but they’re missing the fact that when you look under the hood, it’s actually business-to-business spending that drives most of the economic growth, simply because it’s companies that hire the workers and it’s companies that pay their wages.
You can’t have a strong consumer economy unless you have a healthy business economy. And that is why Trump’s policies are so fundamental.
Promoting business investment also contributes to productivity growth. As economist Ed Yardeni notes in his recent newsletter, all that capital spending has paid off by increasing productivity and profit margins. Corporate profits and margins are reaching record levels, which naturally gives companies the resources to hire more people and pay higher wages. So this whole sequence of tax breaks, business investment, productivity, profits and wages inflates the so-called affordability problem. Actually, it’s just good, solid economic growth.
And finally, the approximately 4% increase in net wages is well above the recent core CPI of 1.6% or the PCE deflator of 2.3%. It’s worth about $2,000 to an average family. So we certainly don’t want any form of government shutdown to get in the way of this Trump boom that is the envy of the world. And we certainly want a new Fed chairman who understands what Mr. Trump said at Davos, which is that economic growth does not cause inflation.
The old Fed models believe that the economy cannot grow at 4%, 5% or 6%, but must remain below 2%. Well, they’re wrong. So Jay Powell and many of his predecessors would tighten policies and stem the boom. They’re wrong. The old Phillips curve model of a false trade-off between growth and inflation should be mothballed.
We have a new world order of low taxes and deregulation, and falling energy prices and rising productivity, all of which are fueling a boom that produces more factories and more goods at lower prices. The new Fed chairman must embody the new Trumpian economy. Kevin Warsh and Kevin Hassett understand Trumponomics. They can be independent, but still understand that supply-side productivity growth does not cause inflation.
But no one can be sure about Wall Streeter Rick Rieder, whose name has surfaced for the Fed. I want to be honest here, but there is evidence that he has donated to George Soros’s “Act Blue” political campaign, and has variously earmarked contributions to ultra-left Democrats like Sherrod Brown, Hakeem Jeffries, Jon Tester, or never-Trumper Nikki Haley.
This doesn’t look like Trumponomics to me. And if I’m wrong about this information, I’m happy to recant, but there is proof from the FEC (Federal Election Commission). Why not stick with the best? One of the two Kevins will do just fine.
