10
consumptionexpenditures,rosejust1.4%overthepast
year.That’sbelowtheFed’s2%target.
AnotherbigplusforU.S.growthis fiscalpolicy,whichis
amplifyingthedemandforgoodsandservices.Thefederal
deficitasa shareofgrossdomesticproductgotassmallas
2.2%neartheendofPresidentObama’stimeinofficein2016,
buthassincegrownto4.5%becauseoftaxcutsandspend-
ingincreases.Criticsarguethatthisisn’ttherighttimeinthe
businesscycleforhighlyexpansionaryfiscalpolicy,butthe
factremainsthatit’skeepinga fireundertheeconomy,says
JimPaulsen,chiefinvestmentstrategistofLeutholdGroup
LLCinMinneapolis.
Interestratesarebecomingmoresupportiveofgrowth,
too.EarlierthisyeartheFedstoppedraisingratesafternine
quarter-pointincreases.InJulyit cutbya quarterpoint,and
themarketanticipatestwoorthreemorereductionsthis
year—withorwithoutTrump’sexhortations.Unlikemostof
theindustrializedworld’scentralbanks,theFederalReserve
stillhasplentyofroomtocutratesbeforegettingdowntozero.
Betteryet,interestratesintheU.S.atthelongendof
theyieldcurvearedownsharply.Theyieldonthe10-year
TreasurynoteisdownbyhalfsinceNovembertounder
1.6%.(That’stheinversionstoryagain.)Whilethedecline
inlongratestendstobeviewedasa signinvestorsexpect
slowereconomicgrowth,thelowrateitselfboostsgrowthby
encouragingmoreborrowingbyconsumersandbusinesses.
Meanwhileinstocks,theS&P 500 is stillupalmost17%this
yeardespiterecentjitters.
Americanbankswereweakheadingintothelastreces-
sion.Nowtheyhavehealthiercushionsofcapitalandample
liquidity,meaningtheycaneasilymeetdemandsontheir
money,LenaKomileva,chiefeconomistofG+Economicsin
London,wroteina notetoclientsonAug.16.
True,therestoftheworldisweakerthantheU.S.,but
thatdoesn’tmeantheU.S. iscertaintobedraggeddown
byrecessionsorslumpselsewhere.Othercountriescould
rebound.“Thereisroomforfiscalsupportfromthelikes
ofGermanyandSouthKorea,”and“Chinastillhaspower-
fultoolstosupportcreditgrowthandmanageitsdecelera-
tion,”ChristopherSmart,chiefglobalstrategistandheadof
theBaringsInvestmentInstitute,wroteinanAug. 19 note
toclients.
Moreimportant,theU.S.remainsrelativelyinsulatedfrom
troublesabroad.Becauseitsdomesticmarketis theworld’s
biggest,companiesdon’tdependheavilyonexportsfor
growth.OnlyinSudan,Burundi,Cuba,andNigeriais trade
a smallershareofGDP,accordingtoWorldBankdata.
America’sinwardnessis alsowhyTrump’stradewarwith
Chinahasn’tdonemoredamage.U.S.exportstoChinaare
justover$150billiona year.Evenif theyfallbya quarter,that
wouldcutU.S.GDPbyonly0.2%.
Allthatsaid,theriskofa recessioncan’tsimplybedis-
missed.Fearofa worseningtradewar,forexample,could
triggera generalizedpullbackinU.S.businessinvestment.
“Ouranalysissuggeststhetweetis mightierthanthetariff,witha biggernegativeimpactfromuncertaintythanthe
protectionistmeasures themselves,” economistsfrom
BloombergEconomicswroteonAug.19.Theyestimate
thatuncertaintygeneratedbythetradewarcouldcut0.6%
fromU.S.outputby 2021 vs.a no-trade-warscenario,while
thedirectimpactofcurrentandscheduledtariffswillcut
just0.3%.Theimpactofthetensionsisalreadybeingfelt
worldwide:Sincetradetensionsbeganrisinginearly2018,
theJPMorganChase& Co.purchasingmanagers’indexfor
globalmanufacturinghasfallenfrom54.4(robustexpan-
sion)to49.3(mildcontraction),theBloombergEconomics
teampointedout.
Thebiggestriskis thatbusinesswillperceivethatthetrade
warpresagesanendtoglobalization,whichKomilevaofG+
Economicswrote“willturnsomeeconomicactivityunpro-
ductiveandcutoffbusinessesfromcredit,atanylevelof
centralbankrates,especiallywhereglobaleconomiclinks
rundeepest.”
Consumerconfidenceis anotherpotentialtroublespot.
TheUniversityofMichigan’sconsumersentimentindexfell
inAugusttoa seven-monthlow.BankofAmericaCorp.Chief
ExecutiveOfficerBrianMoynihanechoedPresidentFranklin
Rooseveltina BloombergTelevisioninterviewonAug.16,
saying,“Wehavenothingtofearabouta recessionrightnow
exceptforthefearofrecession.”
TheFederalReservecouldputa smilebackoninves-
tors’facesbywhackinghalfa pointoffthefederalfundsrate
atitsSeptembermeeting,insteadofmakingtheexpected
quarter-pointcut,saysLeutholdGroup’sPaulsen.Investors
couldusethereassuranceofa bigcutevenif theeconomic
fundamentalsdon’tjustifyit,hesays.“Theriskwehaveis
theeconomymaybegreat,butif youscaretheprivatesector
enough,they’llstopdoingeverythingandwe’llfree-fall,”says
Paulsen.A recessionthatstrucknowwouldbehardtofight
becausefiscalandmonetarypolicyarealreadystimulative.
WhichleadsusbacktoTrump,who’smadehissteward-
shipoftheU.S.economyhisNo.1 issue.“Thestrongeconomy
is Trump’sbestmessageandit is theonethathasthebroad-
estappealandoffersthebestchancetoincreasehissupport
base,”saysRepublicanstrategistMattMackowiak.Toputit
differently,a recessionwoulddoomthereelectionbidofa
presidentwho,evenwithtoday’srobusteconomy,can’tget
hisapprovalnumbersmuchabove40%.
Thathelpsexplainhisall-outcampaigntokeeptheecon-
omymoving,includinghisAug. 19 tweetthattheFedunder
ChairJeromePowellshouldcutthefederalfundsratebyat
leasta fullpercentagepoint“overa fairlyshortperiodoftime.”
Trumpknowshe’sdivisive,buthe’sbankingonvot-
erstorewardhimforpresidingoverthelatterstageof
what’sbecomethelongesteconomicexpansioninU.S.
history.“Youhavenochoice,”hetoldvotersata rallyin
NewHampshireonAug.16. “Whether you love me or hate
me, you gotta vote for me.” If economic conditions con-
tinue to be favorable, he just might get what he wants. <BW>
�With Jordan Fabian◼ REMARKS Bloomberg Businessweek August 26, 2019