If you want to know what the economic backdrop for the 2020 election will be, pay close attention to some of this week’s headlines.
Over the next few days, we’re going to get some readings that tell us a lot about how resilient the economy is after a summer recession alert. If the numbers and political announcements go as forecasters expect, we’ll also see some of the contradictions of the Trump-era economy exposed.
Specifically, the economy at the end of 2019 appears to exhibit a combination of economic growth that is slowing but not falling into a recession, a booming stock market, low interest rates, a tight labor market, and an industry. weak manufacturer. There is always the possibility of surprises, but it could be the mix that shapes the campaign discussion in the year leading up to Election Day.
In particular, if recent trends continue, Democrats will have a way to attack President Trump, highlighting weak growth in employee wages and a struggling industrial sector. Republicans will boast some of the lowest unemployment levels in decades and a robust stock market.
The coming week will provide further clarity on the state of the economy.
On Monday, the S&P 500 hit an all-time high, continuing what has been a good year for stocks. This index is now up 21% so far in 2019, suggesting that investors are ignoring fears of a recession this summer and are confident that corporate earnings will remain strong.
On Wednesday morning, the Commerce Department will release its first estimate of overall economic growth for the quarter ending in September. Analysts expect a slowdown in the growth rate – only a 1.5% annual rate of GDP growth.
These quarter-to-quarter numbers can be volatile, but there is an undeniable deceleration in America’s growth trajectory. The economy grew 3.2% in the 12 months ending in the second quarter of 2018. But the growth rate has declined in every quarter since then, and if analysts’ forecasts for the third quarter prove to be correct , the economy will have grown only about 2 percent over the past year.
The economy appears to have seen only a brief and temporary push towards the 3% growth rate promised by President Trump. It has now started to grow again at about the same modest growth rate that was evident during most of the Obama years.
On Wednesday afternoon, the Federal Reserve will announce its latest policy decision, most likely a quarter-point cut in interest rates, the third since the summer. The Fed aims to keep the expansion going, reversing interest rate hikes in 2018 and trying to shield the US economy from the global slowdown and trade wars.
The Fed’s expected move helps explain the apparent contradiction between a booming stock market and the plummeting rate of growth. Lower central bank interest rates make stocks and other financial assets more attractive, while reducing the risk of a full-blown recession.
Early Friday, the Labor Department will release figures on labor market performance in October. While a now resolved General Motors strike has likely slowed the growth of salaried jobs – a temporary effect – the numbers should also show an unemployment rate that remains close to its lowest levels in five decades, combined with modest growth in employment. workers’ wages.
In other words, economic growth may be slowing, but at a time when the vast majority of Americans who want to work are able to find jobs. This makes weakening GDP growth and job creation less of a concern than it would have been during a time of higher unemployment.
Slower growth is less of a problem when the economy is largely healthy. Yet having a job is not the same as having a well-paying job, and the data so far in 2019 does not support the idea that American workers are receiving large wage increases, despite the low unemployment rate.
On the contrary, wage growth appears to be weakening. Forecasters expect Friday’s press release to show average hourly earnings only rose 0.3% in October. If this turns out to be correct, it will imply salary increases of just 3 percent over the past year. That number was 3.4 percent for the year ended in February.
A final major economic report this week could help explain why. The manufacturing sector in particular is lashing out at the chin, the biggest victim of the slowdown in global growth.
The Institute for Supply Management’s monthly survey of purchasing managers showed the sector was contracting in September. The October issue is due Friday at 10 a.m., and analysts expect it to show an industrial sector that is still contracting but less rapidly than it had been.
This would support the argument that the manufacturing slowdown is contained – that it is detrimental to some businesses and their workers, but does not turn into a total rout that endangers the global economy.
It also seems more likely that the economy will not sink into a recession, unlike a wave of concern that emerged over the summer. Strong U.S. consumer spending and Fed rate cuts appear to have kept things afloat – good news for supporters of the incumbent president.
If the basic story of analysts on the economy holds true over the next few months, the Democratic nominee will still have room to attack President Trump. Democrats could argue that the Trump economy helps stock investors more than workers, and that lower GDP growth, a struggling manufacturing sector, and subdued wage growth mean there is plenty of room for improvement.
At the very least, the next four days could show whether the data matches that narrative.