President Donald Trump has plenty of problems — from Democrats’ constitutional and ethical complaints to the business of running the country — but, at least for now, he seems to have avoided a pre-election recession.
Trump started off the year plagued by worries that the economy was going to go into reverse, undercutting the image of master businessman that he’s sought to project. But sentiment shifted recently, with more experts projecting the economic growth spurt might well carry on until Election Day in just over 18 months.
Case in point is Goldman Sachs chief executive officer David Solomon, who appears to have had a change of heart since January when he stated that there was a 50/50 chance of recession — defined as two consecutive quarters of economic contraction — in the U.S. next year.
Flash-forward just a few months and he’s of a much sunnier disposition, telling CNBC last week that the risk “feels less than that today” and that the second quarter was “chugging along pretty well.”
Even more positive was Jamie Dimon, chairman and ceo of JPMorgan Chase, who in a recent call with analysts was extremely bullish about the strength of the U.S. economy.
He said that if one looks at the American economy, “the consumer is in good shape, balance sheets are in good shape, people are going back to the workforce” and “companies have plenty of capital.” He didn’t stop there, stressing that “it could go on for years.”
“There’s no law that says it has to stop. We do make lists, and look at all the other things: geopolitical issues, lower liquidity. There may be a confluence of events that somehow causes a recession, but it may not be in 2019, 2020, 2021,” Dimon added.
This more upbeat sentiment was echoed in the markets in the first three months of the year, with the S&P 500 enjoying its best quarterly gain in two decades, rising 13.1 percent and reversing a dire end to 2018. Although it closed down slightly Thursday to 2,926.16, it was still close to its all-time high.
Many retail and fashion companies were among those who rode the market higher in the first quarter despite uneven holiday results. The gainers included PVH Corp., which saw its stock gain 31 percent in the quarter; Ralph Lauren Corp., up 25.3 percent; VF Corp., ahead 21.8 percent, and Capri Holdings, up 20.7 percent.
(Not everyone enjoyed such strong results. The decliners included Macy’s Inc., off 19.3 percent, and Tapestry Inc., down 3.7 percent).
Away from Wall Street, others also seem to be growing more optimistic — albeit cautiously. One of those is Gita Gopinath, chief economist of the Washington-based International Monetary Fund, who wrote in a blog last week that after the weak start to the year, global “growth is projected to pick up in the second half of 2019,” a good sign for the U.S. economy.
She believes there have been two main factors that have helped soothe nerves since the beginning of the year.
The first is the raft of central banks that have pulled back on their aggressive plans to hike interest rates, which some had worried could hamper growth prospects. This included the Federal Reserve, moving to pause its policy of returning rates toward pre-crisis levels after months of criticism from Trump that the independent committee was harming the economy, although the Fed stressed that this was not the reason.
The second is an easing in trade tensions between the U.S. and China, which had reached a boiling point last year as the two sides slapped punitive tariffs on each other and which had unnerved retailers and fashion brands for the potential to upend their supply chains and force them to raise their prices to compensate for the duties on Chinese imports.
Washington and Beijing are currently locked in a truce as negotiators from the two superpowers attempt to hammer out a deal without losing face. It looks like progress has been made, with media reports suggesting an agreement could be made as early as next month.
All this, according to Gopinath, has “helped reverse the tightening of financial conditions to varying degrees across countries.”
That’s not to say there aren’t risks on the horizon that could potentially cause problems before Election Day — and with Trump, controversy or a major policy shift are always just a tweet away.
Gopinath wrote that there are many potential pitfalls, including renewed trade tensions, especially in the auto industry; the Brexit fallout, and a potential slowdown in China and Europe, which could have knock-on effects for the U.S.
What’s more, while some bank executives and economists have become more upbeat, there are still others who are not. In its long-running survey of more than 1,500 chief financial officers, including close to 500 in North America, the Duke University/CFO Global Business Outlook found that two-thirds of cfos in the U.S. are predicting a recession by the third quarter of 2020 — just before the election.
This, though, is still further away than what they were forecasting in December when the downturn in the market and the trade war sparked concern.
If these worries do become reality and take their toll on the U.S. economy, then timing is everything, said Gary Clyde Hufbauer, an economist at the Peterson Institute for International Economics, a think tank.
“The historical experience has been that people do vote with their pocketbook as it looks kind of in the spring or the summer before the November election,” he told WWD. “That’s when they tend to make up their minds. If things suddenly got bad in October 2020, that’s probably too late to affect people unless it was really a sharp move up or down.”
It’s for this reason that Trump and his competitors will no doubt be watching the economic data like hawks.
Top of their lists will be first-quarter GDP numbers, which are due out today and are now widely forecast to come in better than previously expected, at just above the 2 percent mark despite a shaky start to the year given the partial government shutdown. Some economists are even predicting close to 3 percent on the back of a shrinking trade deficit.
This, however, masks a mixed bag of data. On a positive note, the country’s unemployment rate is at a historically low level of 3.8 percent, and there are tentative signs that wages are finally starting to catch up with the rest of the labor market.
In particular, competition for workers has led some major employers — including Amazon and Walmart — to push up their minimum wages and the hope is that this will result in increased consumer spending. Jeff Bezos at Amazon wants to go even higher and recently challenged his brick-and-mortar competitors to beat the web giant’s starting wage of $15 an hour.
On the other side of the coin, the U.S. manufacturing sector this year suffered its first quarterly drop in output since Trump was elected, while consumer confidence is starting to slip, albeit from historically strong levels, according to the latest data. Other worrying signs include the decidedly uneven performance of retail sales since the holiday period, despite rising wages and lower unemployment.
But as they pore over the numbers, just how important is the economy to voters these days?
Hufbauer thinks the economy is as important to the election as it was in the early Nineties when then-Arkansas Gov. Bill Clinton’s strategist James Carville coined the phrase “It’s the economy, stupid” — meaning that the economy and personal finances would dictate how many people voted.
A recent poll by analytics firm Gallup suggests otherwise, though, finding that just 13 percent of respondents singled out the economy as the most important problem facing the U.S., close to record lows.
Instead, the most popular answer was dissatisfaction with government and poor leadership, followed by immigration.