Although talk of a recession subsided early this year, it’s back in full force thanks to the trade war with China.
“Call it scare-mongering if you like, but many of the data releases [last] week had the unmistakable whiff of a recession,” said chief U.S. economist Paul Ashworth of Capital Economics.
According to Market Watch, none of us should expect great economic news during this holiday-abbreviated week. The trade deficit is likely to widen (and not in the United States’ favor), consumer confidence could decline (and it should for all intents and purposes), and household spending was probably tepid in April. This all signifying one thing: an economic recession.
The U.S. economy has taken a turn for the worse and it doesn’t look as if things will get much better anytime soon as global problems persist. A mountain of evidence in the past two weeks shows that key segments of the economy have slackened. Retail sales fell last month, business investment nearly dried up and manufacturers are growing at the slowest pace in nine years.
Most of the economic news is bleak. But neither Ashworth or other economists are predicting that recession will be “soon.” That means we have the time necessary to prepare but shouldn’t wait too long to do so. Stocks, the one bright spot in this oddball economy will eventually become infected with the trade war drama that’s hitting the rest of the markets.
“The dawning realization that U.S.-China trade tensions are not going to be resolved anytime soon continues to rattle markets,” said chief economist Douglas Porter of BMO Capital Markets, according to Market Watch.
Employment hasn’t taken a major hit just yet either, which seems to align with economists guesses that most will have some time to prepare. “The U.S. still has a rock solid labor market,” said chief economist Scott Anderson of Bank of the West. Layoffs and unemployment remain near a 50-year low, and even if companies aren’t hiring as rapidly as they were last fall, they aren’t resorting to mass job cuts, either…just yet. But eventually, that will be necessary.
Most economists also agree that the Federal Reserve’s recent decision to leave interest rates stagnant won’t be enough to keep the U.S. from slipping below 2% growth in the second quarter. They also expect the initial 3.2% reading for first-quarter gross domestic product to be trimmed to 3% or less.
“The strength of the US economy in the first quarter was presumably one of the factors that emboldened President Donald Trump to take a tougher line with China in the trade dispute,” Ashworth contended.
But the incoming data “would leave Trump in a more vulnerable position.”
This trade war has the ability to fling the U.S. into recession, and if that happens before the election in 2020, Donald Trump’s chances of reelection will drop dramatically.