BERKELEY HEIGHTS, N.J. – President Donald Trump dismissed concerns of recession on Sunday and offered an optimistic outlook for the economy after last week’s steep drop in the financial markets.
“I don’t think we’re having a recession,” Trump told reporters as he returned to Washington from his New Jersey golf club. “We’re doing tremendously well. Our consumers are rich. I gave a tremendous tax cut and they’re loaded up with money.”
A strong economy is key to Trump’s re-election prospects. Consumer confidence has dropped 6.4% since July. The president has spent most of the week at his golf club in New Jersey with much of his tweeting focused on talking up the economy.
Aides sought to reinforce that message during a series of appearances on the Sunday talk shows.
Larry Kudlow, Trump’s top economic adviser, dismissed fears of a looming recession and predicted the economy will perform well in the second half of 2019. He said that consumers are seeing higher wages and are able to spend and save more.
“We’re doing pretty darn well in my judgment. Let’s not be afraid of optimism,” Kudlow said.
Kudlow acknowledged a slowing energy sector, but said low interest rates will help housing, construction and auto sales.
Kudlow also defended the president’s use of tariffs on goods coming from China. Before he joined the administration, Kudlow was known for opposing tariffs and promoting free trade during his career as an economic analyst. Kudlow said Trump has taught him and others that the “China story has to be changed and reformed.”
“We cannot let China pursue these unfair and unreciprocal trading practices,” Kudlow said.
Democratic presidential candidate Beto O’Rourke said the U.S. needed to work with allies to hold China accountable on trade. He said he fears Trump is driving the global economy into a recession.
“This current trade war that the president has entered our country into is not working,” O’Rourke said. “It is hammering the hell out of farmers across this country.”
Last month, the Federal Reserve reduced its benchmark rate — which affects many loans for households and businesses — by a quarter-point to a range of 2% to 2.25%. It’s the first rate cut since December 2008 during the depths of the Great Recession. Federal Reserve Chairman Jerome Powell stressed that the Fed was worried about the consequences of Trump’s trade war and sluggish economies overseas.
“Weak global growth and trade tensions are having an effect on the U.S. economy,” he said.
Breaking with historical norms, Trump has been highly critical of Powell as he places blame for any economic weakness on the nation’s central bank for raising interest rates too much over the past two years.
“I think I could be helped out by the Fed, but the Fed doesn’t like helping me too much,” Trump complained Sunday.
Peter Navarro, who advises Trump on trade policy, shared that sentiment.
“The Federal Reserve chairman should look in the mirror and say, ‘I raised rates too far, too fast, and I cost this economy a full percentage point of growth,’” Navarro said.
Trump acknowledged at least a potential impact on consumers when he paused a planned 10 per cent tariff hike for many items coming from China, such as cellphones, laptops, video game consoles, some toys, computer monitors, shoes and clothing.
“We’re doing (it) just for Christmas season, just in case some of the tariffs could have an impact,” the president told reporters in New Jersey.
Navarro would not go even that far, saying Sunday “there’s no evidence whatsoever that Americans consumers are bearing any of this.”
Kudlow was interviewed on NBC’s “Meet the Press” and “Fox News Sunday.” O’Rourke spoke on NBC, and Navarro appeared on CNN’s “State of the Union” and CBS’ “Face the Nation.”
Trump’s trade war with China has been a target of criticism by Democrats vying to challenge him in 2020.
“There is clearly no strategy for dealing with the trade war in a way that will actually lead to results for American farmers or American consumers,” said Mayor Pete Buttigieg of South Bend, Indiana, a Democratic presidential candidate. He said on CNN that it was “a fool’s errand” to think tariff increases will compel China to change its economic approach.
Trump maintained that China’s economy is struggling because of the tariffs and would like to make a trade deal with the U.S. He said he could make a “bad deal” and the stock markets would go up, “but it wouldn’t be the right thing to do.”
German economy grows slightly in 3Q
BERLIN — Germany’s gross domestic product returned to modest growth in the third quarter, the Federal Statistical Office reported Thursday, staving off a widely-feared recession in Europe’s largest economy.
The Wiesbaden-based agency said the economy grew 0.1% in the July-September period over the previous quarter, largely driven by public and private consumption. Exports rose as well, while imports remained roughly at the second quarter level, the agency reported.
It said, however, that the second quarter contraction was greater than preliminary figures had shown, with the economy shrinking in the April-June period by 0.2% compared to the 0.1% originally reported.
Two straight quarters of declining output is considered a technical recession, which many economists had predicted that Germany had entered in the third quarter.
A week ago, the German government’s independent panel of economic advisers reported that a 0.1% third-quarter contraction was likely.
Though they said there were no signs of a “broad, deep recession,” the panel also said there was no sign of a “strong revival” in the fourth quarter. The five-member panel cut its economic forecast to growth of 0.5% this year and 0.9% in 2020, compared with its forecast in March of 0.8% this year and 1.7% next year.
And even though the recession has been averted, the numbers show Germany is in a de facto stagnation, and its export-driven economy still faces headwinds due to international uncertainty.
Services companies and the jobs market have held up well in Germany, but the industrial sector, led by automobiles and factory machinery, has seen declines amid trade tensions.
Among other things, the dispute between U.S. President Donald Trump and the Chinese leadership over China’s trade surplus with the U.S. has dampened trade and industrial output by raising uncertainty about whether and where more tariffs might be imposed. Another negative is uncertainty about the date and terms of Britain’s departure from the European Union.
In their report, the government economists cautioned that a no-deal Brexit could yet chop 0.3 percentage points off next year’s German growth, reducing it to 0.6%.
Britain is currently scheduled to leave the European Union by the end of January, but whether, how and when it leaves will depend on the outcome of an election next month.
China economy grinds lower as October indicators miss forecasts
By Gabriel Crossley and Huizhong Wu
BEIJING (Reuters) – China’s industrial output grew significantly slower than expected in October, as weakness in global and domestic demand and the drawn-out Sino-U.S. trade war weighed on activity in the world‘s second-largest economy.
Industrial production rose 4.7% year-on-year in October, data from the National Bureau of Statistics released on Thursday showed, below the median forecast of 5.4% growth in a Reuters poll.
Indicators showed other sectors also slowing significantly and missing forecasts with retail sales growth back near a 16-year trough and fixed asset investment growth the weakest on record.
The disappointing economic data adds to the case for Beijing to roll out fresh support for the economy after China’s economic growth slowed to its weakest pace in almost three decades in the third quarter as the bruising U.S. trade war hit factory production.
Broad activity in China’s manufacturing sector remains weak with data on the weekend showing factory gate prices falling at their fastest pace in more than three years in October.
China’s official Purchasing Managers’ Index (PMI) also showed activity in the factory sector remained in contraction for a sixth straight month in the month.
“Admittedly, optimism surrounding a phase-one U.S.-China trade deal could provide a boost to corporate investment in the near term,” Capital Economics China Economist Martin Lynge Rasmussen said.
“But even if a minor deal is agreed upon in the coming months, this would merely allow the focus to shift to the more intractable issues that we think will eventually lead the trade talks to break down. The case for further monetary easing remains intact.”
Other data on Thursday showed China’s property investment growth in the first 10 months of the 2019 slowing year-on-year.
The tariff war between China and the United States has hit global demand, disrupted supply chains and upended financial markets.
While some signs of recent progress in trade negotiations between the superpowers have cheered investors, officials from both sides have so far avoided any firm commitments to end their dispute.
That uncertainty has continued to weigh on manufacturers and their order books.
Thursday’s data also showed fixed asset investment, a key driver of economic growth, grew 5.2% from January-October, against expected growth of 5.4%. The January-October growth was the lowest since Reuters record began in 1996.
Private sector fixed-asset investment, which accounts for 60% of the country’s total investment, grew 4.4% in January-October.
On Wednesday, China’s State Council said Beijing would lower the minimum capital ratio requirement for some infrastructure investment projects.
Retail sales rose 7.2% year-on-year in October, missing expected growth of 7.9% and matching the more than 16 year low hit in April.
Consumers have been hit with higher food prices over the past few months, as pork and other meat prices soared.
At the same time, consumers have been reluctant to make big purchases with auto sales falling for the 16th straight month in October, data showed on Monday.
(Writing by Stella Qiu; Editing by Sam Holmes)
Why Corporate America Is Bullish on the Economy – Investopedia
Corporate executives are surprisingly bullish about the U.S. economic outlook for 2020, judging from an extensive analysis of management commentary in Q3 2019 earnings conference calls, as conducted by Goldman Sachs. Among the companies making particularly optimistic comments are Marriott International Inc. (MAR), Procter & Gamble Co. (PG), Republic Services Inc. (RSG), Harley-Davidson Inc. (HOG), and Allegion PLC (ALLE).
“Despite high levels of uncertainty, executives remained upbeat on the 2020 economic outlook. Corporate managers were optimistic about recent economic data, particularly consumer data,” Goldman writes in the current edition of their quarterly S&P Beige Book publication, released on Friday. “However, uncertainty remains high and executives expect to be dealing with US-China trade tensions for the foreseeable future. Consequently, inventories have declined and dealer demand has dropped,” they add.
- U.S. corporate executives are upbeat about the economy in 2020.
- This is based on analysis of Q3 2019 earnings calls.
- However, other surveys of CEOs and CFOs indicate growing gloom.
- The OECD, IMF, and Conference Board see lower U.S. growth in 2020.
Significance For Investors
Hotel operator Marriott calls the U.S. economy “robust” overall, and notes that its industry has low unemployment and high occupancy. Consumer products company Procter & Gamble sees “no signs of weakness.” Waste hauling company Republic says “the underlying economy is pretty strong…our view now and our view for 2020 is the economy is in pretty good shape.” Motorcycle manufacturer Harley-Davidson does not see any more uncertainty than 6 months ago, and noted that its own industry enjoyed a Q3 “pick up,” calling this “an encouraging sign.”
Security products and services company Allegion says “we are solid, positive, upbeat on the economy.” They find that the key indicators for their business are encouraging, including consumer confidence, low unemployment, high tax revenues for state and local governments, low interest rates, and a tight housing market. In conclusion, they “don’t know how you could not be positive about the view going forward.”
However, the bullish views observed by Goldman in Q3 conference calls conflict with recent surveys that show declining confidence among senior executives. CEOs are more gloomy about the future than at any previous time since the global financial crisis of 2008, according to a survey conducted by the Conference Board that was cited in a previous Goldman report. Meanwhile, “More than half (53%) of US CFOs believe that the US will be in recession by the 3rd quarter of 2020 and 67% believe that a recession will have begun by the end of 2020,” per the latest Duke University CFO Global Business Outlook survey.
Other key trends discussed in Goldman’s Beige Book relate to spending plans and the upcoming 2020 U.S. national elections. “S&P 500 cash spending plummeted in 2Q driven by a ten-year low in CEO confidence, but has stabilized in 3Q. Many executives highlighted deferring capital expenditures as they approached investments with increased caution,” the report noted. “Firms also outlined plans to divert cash from capital projects and [stock] buybacks in favor of strengthening the balance sheet,” the authors added.
Regarding the 2020 elections, many companies indicated that they are planning for multiple outcomes. Others preferred to discuss their long-term plans, while avoiding comments on politics. Some noted that there often is a big difference between what politicians advocate as candidates, and what they they actually do once elected.
In contrast to the bullish notes on the economy that Goldman finds in earnings commentary, Q3 2019 profits for the S&P 500 are on track to be down on a year-over-year (YOY) basis for the third consecutive quarter. However, while aggregate S&P 500 Q3 earnings are down by about 1% YOY so far, the median S&P 500 stock actually has a 5% increase, per Goldman’s current US Weekly Kickstart report.
Real GDP growth in the U.S. will slow from average rates of 2.9% in 2018 and 2.3% in 2019 to its long-term trend of 2.0% in 2020, per The Conference Board. However, this will represent a slight increase from annualized rates of 1.9% in Q3 and Q4 2019. The OECD calls for 2.28% U.S. real GDP growth in 2020, while the IMF projects U.S. economic growth to be 2.1% in 2020, down from their estimate of 2.4% for 2019.
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