The Economist - USA (2019-11-02)

24 United States The EconomistNovember 2nd 2019

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1

ate...We believe monetary policy is in a

good place.” A majority of members of the

rate-setting committee reckon the Fed

should resume rate increases in 2020.

The Fed’s confidence, if understand-

able, may be premature. The conditions

weighing on the economy earlier in the

year have eased a little, but the growth

scare did its damage. Consumers have been

the ones driving the economy forward.

They continue to spend, but with less gusto

than before. Personal consumption spend-

ing grew at a 2.9% annual pace in the third

quarter: not bad, but down from 4.6% in

the second. Retail sales in September

dropped by 0.3%, suggesting that the quar-

ter ended on a weak note. Measures of con-

sumer confidence—a guide to how spend-

ing may evolve in future—have slipped.

Firms, too, are behaving cautiously.

Measures of business confidence have

been softening. Anxiety among bosses is

affecting investment: the boost to third-

quarter gdpfrom investment in housing

was more than offset by a hefty drop in in-

vestment in non-residential building and

equipment. Weak investment figures are

particularly irksome to economists in the

Trump administration, who argued that

the president’s tax reform would encour-

age a boom in business spending. Business

enthusiasm could recover a bit in the

months to come, if indeed a trade-war

ceasefire is declared. But the trade war is

only partly responsible for firms’ woes.

More important is the worldwide slow-

down. Both Europe and Japan have slipped

close to the brink of recession, and the de-

celeration in Chinese growth shows few

signs of abating. A turnaround in American

economic fortunes, if it occurs, will begin

with homegrown optimism.

Hopes for that hinge in turn on the

health of the labour market. The jobs pic-

ture has been the most enduring source of

encouragement to those looking on the

bright side. The pace of hiring has slowed;

payrolls have risen by 1.4% over the past 12

months, down from 1.8% over the year be-

forethat.Butthatisnotanunexpectedde-

velopmentthisdeepintoaneconomicex-

pansion, when fewer jobless workers

remainto be hired.The unemployment

rate,at3.5%,remainsextraordinarilylow.

Solongasfirmscontinuetohireandwages

to grow, consumers are likely to keep

spendingatrates sufficientto steerthe

economyclearofa downturn.

Giventheuncertaintysurroundingthe

pathoftheeconomy,theFedmighthave

beenexpectedto signal itsreadiness to

keepcuttingrates,if necessary,moreclear-

ly.Confidenceiseasiertomaintainthanto

restore,andtherisksofa surgeininflation

havefalleninrecentmonths.Thepricein-

dex for personal consumptionexpendi-

tures,theFed’s preferredinflation mea-

sure,roseata 1.5%annualpaceinthethird

quarter, below the Fed’s 2% target and

downfrom2.4% inthesecond.Instead,the

centralbankseemscontenttowaitandsee

howconditionsdevelop—andtoallowa

presidentfacingthreatsfromallsidesto

twistinthewind. 7

Slump over?

Source:BureauofEconomicAnalysis

United States, contributions to GDP growth

Percentagepoints,annualisedrate

Personalconsumption

Grossinvestment

Governmentspending

Net exports

-2

0

2

4

2017 2018

2019

Q1 Q2 Q3

Net

growth

T

he twin races for the governorships of

Mississippi (on November 5th) and

Louisiana (on the 16th) will show whether,

as a former House Speaker once said, “all

politics is local”, or whether, in the days of

Donald Trump, national partisanship su-

persedes everything and even local politics

are not local any more. At stake is whether

conservative Democrats can win statewide

office in the Deep South.

Traditionally, southern voters have re-

garded governors differently from the offi-

cers they send to Washington. Senators or

congressional representatives are judged

on their party, and Republicans have swept

the South. But governors have been seen as

local problem-solvers. They were judged

on their personalities, and sometimes on

links to powerful local families. In both

states, Democrats this year are putting up

the kind of person who has usually held his

own in the South.

John Bel Edwards is a Catholic who has

signed one of the country’s toughest anti-

abortion laws, has a military background

and is a defender of gun rights. As the in-

cumbent in Louisiana, he is the only gover-

nor from his party in the South. For a

Democrat in a Republican state, he is re-

markably popular, with a net favourability

rating of 18 (50% approve, 32% disapprove).

He has stabilised the state’s shaky finances

and introduced criminal-justice reforms

which mean Louisiana is no longer the

state with the highest incarceration rate.

In Mississippi, Jim Hood is the only

Democrat holding statewide office, having

been elected attorney-general four times.

The incumbent (Republican) governor is

term-limited, so this race is open. Mr Hood

has proposed an expansion of Medicaid

and increased funding for the state’s roads.

But he also looks like a much-loved Missis-

sippi-born country-music singer, Conway

Twitty. He and Mr Edwards are the inverse

of “Republicans in name only”. They are

Republicans in all but name.

Yet even in Louisiana—with its French-

influenced legal system, 2m alligators and

unique Caribbean-French-Creole-Catho-

lic-Cajun culture—the nationalisation of

politics is changing the political rules. On

October 12th the state held its “jungle prim-

ary”, in which all candidates for office re-

gardless of party were on the ballot and

those who got 50% were elected without

having to go through a second round. Mr

Edwards’s vote soared in areas around cit-

ies (New Orleans, Baton Rouge) and

crashed in the rural rest of the state. As a re-

sult, he narrowly missed the magic 50%.

Kyle Kondik, a political analyst at the Uni-

versity of Virginia, argues that this reflects

a national trend: “White, rural areas with

little college education are shifting to Re-

publicans. Suburban areas with more col-

lege graduates are shifting to Democrats.”

Mr Trump is doing his best to consoli-

date this national trend. On the eve of the

primary he held a big rally in Louisiana to

turn out the white working-class vote, to

great effect. In Louisiana the Republican

candidate is a construction magnate and

self-styled “conservative outsider” called

Eddie Rispone who models himself on the

president. He won the nomination by criti-

BATON ROUGE AND JACKSON

Governors’ races in two deep-southern

states have national implications

Louisiana and Mississippi

Democrats in Dixie

Decision time in the Deep South