Awaiting the effect President-elect Donald Trump has on investing

Three weeks ago, one of the most controversial and contentious elections in memory was held to determine the leader of our country. The outcome has been acknowledged by both sides as a surprise and appears destined to lead to some interesting discussions and decisions during the next few years.

For investors, the impact of President-elect Donald Trump’s win was felt quickly. As a whole, stocks rose in the weeks after the election, but there were definite sector winners and losers based on perceptions of what the new president’s policies would be.

The dollar rose relative to most foreign currencies. Bond prices fell across the board as fears of higher interest rates set in on anticipation that Trump’s policies would include more deficit spending to stimulate the economy.

The price movements indicate optimism by investors that the rate of economic growth will rise under the new presidency, and Trump made lofty promises on that topic in his effort to get elected. Now we will see if he can deliver.

I hope that Trump is able to succeed because we all will benefit if he does. However, there are reasons to temper all the talk that the economy will jump from its current growth rate of 2-2.5 percent to 4 percent or more.

One of the foremost reasons is our employment rate. Many doubt the calculation of the unemployment rate is accurate, but if the method of accounting for the unemployed is kept constant over time, there is value in the historical data.

Most economists accept that in a capitalistic society, the full employment rate is about 96-97 percent, which corresponds to the lowest unemployment rate being about 3-4 percent. There are always people between jobs or leaving jobs to start businesses, so even when times are good, we have some unemployment.

Today, the unemployment rate is about 4.9 percent, so we are within about 1 percent or so of full employment, which would require 1.5 to 2 million new jobs.

Would adding up to two million new jobs cause economic growth to reach or top 4 percent? I have some doubts. As a point of reference, the economy has added about nine million jobs since the Great Recession in 2008-09 and growth has struggled to exceed 2 percent.

A large part of the economic growth rate comes from population growth, with new workers earning wages and paying taxes. Compared to most developed countries, the United States is fortunate that the population is growing rather than declining or remaining stagnant.

That said, in my opinion, the rate of population growth is not high enough to spur growth in the economy to 4 percent or more. And with Trump’s policies likely to reduce immigration, this further dampens the prospects for population growth to help grow the economy.

There are many aspects to growing an economy, and I hope that we do see an uptick in growth. But I also think that investors should temper expectations that all of our problems suddenly will be solved.

This story was originally published November 28, 2016 at 11:45 AM with the headline "Awaiting the effect President-elect Donald Trump has on investing."