ssweek October 14, 201935thestartoftheyear.Theyarelowerthantheywere
overthesummerandbeforepreviousdownturns,”
wroteBloombergeconomistsElizaWinger,Yelena
Shulyatyeva,andAndrewHusbyonOct.2.
Moody’s Analytics Inc. chief economist Mark
Zandi reckons a recession is all but inevitable if
President Trump follows through on his threat to
impose tariffs on virtually all U.S. imports from
China by the end of the year. Such a move would
probably rock financial markets and hurt the econ-
omy, says Matthew Luzzetti, chief U.S. economist
for Deutsche Bank Securities. If that happens, he
says, the odds of a recession would rise to 50-50.
Some other analysts are not as pessimistic.
Former International Monetary Fund chief econo-
mist Maury Obstfeld believes a ratcheting up of tar-
iffs on China would probably lead to slower growth,
but not a recession. “I just don’t see what would set
off a broad contraction in activity,” says Obstfeld,
who’s now a senior fellow at the Peterson Institute
for International Economics.
That’s because many of the traditional drivers
of downturns seem to be absent. Inflation isn’t
high and rising. If anything, it’s too low, at least as
far as the Fed is concerned. And the central bank
isn’t raising interest rates. It’s lowering them. Stock
prices are elevated, but they are arguably not in
bubble territory given the low level of interest rates.
And households aren’t overburdened with debt, as
they were heading into the Great Recession. “The
consumer right now in the U.S., at least in termsof our business, is doing really well,” says Hugh
Johnston, chief financial officer for PepsiCo Inc.
“You have a lot of trouble identifying what the
trigger would be for a recession in the U.S., espe-
cially a deep one,” says Andrew Hollenhorst, chief
U.S.economistforCitigroupInc.“Thatmakesus
feela littlelessconcerned.”Heputsthechancesof
a recessionoverthenext 12 monthsatabout30%.
ForveteranforecasterAllenSinai,thesitua-
tionisreminiscentofthelead-uptothe1990-91
recession. Then, companies responded to a profit
squeeze from rising wages by cutting back spending
and hiring. This time, slowing sales abroad could
prompt U.S. companies to pull back, says Sinai,
president of Decision Economics Inc. He says the
lesson from the earlier period is that the Fed needs
to respond aggressively and preemptively to the
dangers of a recession.
The trouble is that the outlook is far from clear.
Some risks, such as Brexit, have yet to materialize.
Others, like the U.S.-China tit-for-tat tariffs, have
soured business sentiment but only recently begun
to crimp output at U.S. factories. “We are having a
hardtimejudginghowlargethisgeopoliticalshock
is,”saysJPMorgan’sKasman,whoreckonsthatthe
oddsofa recessionoverthenext 12 months are 35%
to 40%. �Rich Miller, with Craig Giammona and
ThomasBlackTHE BOTTOM LINE Most economists say the odds of a U.S.
recession are less than 40%, but another round of tariffs and
countertariffs could make it more of a certainty.● Thepathtoa U.S.-Chinadealis becoming
evernarrowerasbothsidesdiginTrade Standoff
Relations between the world’s two largest
economies were a mess long before the latest round
of U.S.-China negotiations was set to get under way
on Oct. 10-11. But things were only getting worse as
thetalksapproached,puttinga damperonhopes
ofa potentialtruce.
OnOct.7 the Trump administration announced
it was placing eight Chinese technology companies
on a blacklist, accusing them of being implicated in
human-rights violations against Muslim minorities
in China’s Xinjiang region. Among those targeted
are Hangzhou Hikvision Digital Technology Co.There’s
NO
BUBBLETROUBLE
It’s geopolitics, stupid