KEY POINTS:
- The U.S. economy may be growing at a sub-trend pace, the most sluggish since the first quarter of 2017, when President Donald Trump took office.
- The slower growth is being blamed on a wind down of U.S. stimulus but also other factors, like the cooling global economy, trade wars and now the government shutdown.
- Economists, however, do expect slower growth but do not expect a recession this year.
The U.S. economy is likely growing at the slowest pace since President Donald Trump took office, but it is not yet heading for a recession as some fear, economists said
Worries about a global recession were fed this week by the 2018 GDP report from China, showing the slowest annual growth rate in nearly three decades, at 6.6 percent. High profile investors, like Bridgewater founder Ray Dalio, are also warning of a recession from the World Economic Forum in Davos, Switzerland.
The U.S. economy, meanwhile, seems to have slowed, though economists do not have as much data as usual because of the government shutdown. However, housing data for December showed a sharp drop off in home sales to a three-year low while consumer sentiment fell to 90.7, its lowest level since October 2016. Industrial production was strong, but ISM manufacturing activity fell to a two-year low.
“It just shows how fragile things are. If we don’t have recession this year, the odds are high that we’ll have one in the next few years.,” said Mark Zandi, chief economist at Moody’s Analytics. ” I think we’ll navigate through. As the economy weakens, political pressures will intensify and the policy makers will respond sufficiently to keep the train on the tracks.”
Dalio said on a panel at Davos, that he expects a recession in 2020, and it’s “the next downturn in the economy worries me the most.” He also said he’s concerned about “greater political and social antagonism” around the globe.
The IMF this week said it cut its global growth forecast for 2019 to 3.5 percent from 3.7 percent, pointing to the trade conflict between the U.S. and China.
Zandi said the U.S. economy is responding to a number of factors that have resulted in a slower first quarter, after a period of above 2 percent growth, back to the second quarter of 2017.
Cummins also said some of the negatives in data could be reversing. For instance, the slowdown in housing may be temporary and a response to higher mortgage rates, which have since come down. Mortgage applications jumped more than 13 percent last week.
One big fear was that the Fed would engineer a recession by raising interest rates too much, but the Fed has adopted a more dovish tone and has stressed that it could pause in its rate hiking.
But China’s slowdown remains a concern since it could chill the world economy.
Reference: CNBC
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