Normally, US President Trump uses three economic figures to assess the strength of the US economy and thus his own policies……
The status of the Dow Jones Industrial Index, the quarterly growth of the US gross domestic product and the current labour market figures. He does not miss any opportunity to glorify the best US economy for a long time in front of the press or in official statements.
But before the G20 summit, does he register the dark clouds in the skies?
While the three indicators are showing two backward-looking economic figures (lagging indicators; exception – Dow Jones, more on that…), there are a number of economic indicators that announce future calamities:
- The leading purchasing managers’ indices (ISM-PMI, Philadelphia-Fed Index), which are moving towards the 50 point growth threshold
- Falling US Exports and Imports
- Sales figures of existing homes falling since March
- A huge drop in interest rates, including the inversion of the yield curve as a generally accepted indicator of recession. With time to go, but Trump is unlikely to like that in the run-up to the elections.
- Falling inflation outlook – no sign of a strong economy
- The drifting apart of the US domestic stock index Russell 2000 from the Dow Jones and the weakness of the Dow Jones Transport Index
- US consumer confidence is very much in the spotlight, and has plummeted from 134.1 to 121.1 compared to the previous month. If the decline in confidence also unfolds in purchasing restraint, this would be a truly recessive problem for an economy that is 70 percent dependent on the consumption of its citizens.
The deteriorating data are due to a weakening of the global economy and thus to a causal link based on the trade dispute that has been going on for more than a year – even if the President may judge this differently. But why is the Dow Jones so high?
In our view, there are two explanations for this. The first is that the major market participants have been convinced so far that there will not be a major escalation with China – keyword elections in 2020. The second is the extremely great hope for interest rate cuts by the Fed, which have so far always been a price boost outside periods of recession.
The time-lag problem with the publication of the data
The data so relevant to President Trump will be updated shortly. The latest labour market data will be released on Friday in a week, while GDP growth for the second quarter will take a few weeks. After the surprisingly strong first quarter of 2019 with 3.1 percent annualized, some forecasts for Q2 expect a strong decline to 1.3 percent.
Signals that President Trump must also hear
There is talk of increasing protest by the US economy against the president’s customs policy. Firstly, there is the alliance of hundreds of companies and associations to form the “Tariffs Hurt the Heartland” group, which warns of the consequences of customs tariffs. As mentioned yesterday, for President Trump, these are not insignificant, as they are non-coastal states where Trump received the most support in the 2016 presidential elections. In addition, there is the great appeal of the US tech companies, especially Apple, which warn of delivery difficulties as a result of the trade dispute and, indirectly, of job losses.
The big question is, will all this be enough to motivate the US President to rethink his customs policy? Most probably not. But also not to an escalation by the introduction of customs tariffs on the remaining 300 billion dollars imported from China. Even if the Dow Jones is close to its record high, Trump should be aware of the reactions that will follow. Rather, the talks between Donald Trump and Xi Jinping could lead to small (agricultural) interim agreements and a promise to resume negotiations for a “big deal” in the near future.