Trump advisers worry U.S. will talk itself into a recession
Officials say media could make fear a reality
U.S. President Donald Trump’s economic advisers do not see a recession on the horizon, but they worry that gloomy news reports and a drumbeat of recession warnings could turn fear of one into reality.
Late last week, the acting chair of Trump’s Council of Economic Advisers, Tomas Philipson, said reporters who have fixated on possible signs of a recession in bond markets this month appeared “to want people to lose jobs” and “become not economically self-sufficient.”
“As an American,” Philipson said, “you should not want a recession, no matter your political views.”
Trump’s escalating trade war is the reason economists, traders and the American public are increasingly worried about the possibility of recession. As the president punishes China with higher tariffs — and Beijing retaliates — the fight is exacerbating a global growth slowdown while dragging on investment and business confidence in the United States.
Investment has slowed this year and actually contracted in the spring, and manufacturing output has slumped. Global growth is cooling and the Federal Reserve has cut interest rates, partly out of concern over tariff-driven uncertainty. The overall growth rate has fallen, compared with last year.
Through all that, Americans have kept shopping, continuing to power economic growth. Consumer spending increased at an annualized rate of 4.7 per cent in the spring, the Commerce Department said on Thursday, its fastest quarterly increase in nearly five years. But one measure of consumer
sentiment slipped by the most since 2012, data Friday showed, seemingly on tariff concerns: one in three respondents spontaneously mentioned the trade war.
Administration officials want to keep confidence high and are increasingly shifting blame for any slowdown on the media, Democrats and the Fed, which Trump has accused of putting the United States at a disadvantage to other countries by keeping interest rates too high.
“The way the media reports the weather won’t impact whether the sun shines tomorrow,” Philipson said.
“But the way the media reports on our economy weighs on consumer sentiment, which feeds into consumer purchases and investments.”
Trump himself has raised similar concerns, but has dismissed any talk of recession as improbable given the “strong” economy.
On Friday, Trump continued his attack on the Fed as the main culprit in any slowdown, saying on Twitter, “The Euro is dropping against the Dollar ‘like crazy,’ giving them a big export and manufacturing advantage … and the Fed does NOTHING!”
He also rejected the idea that his tariffs are hurting American companies, saying any corporate pain is self-inflicted.
“Badly run and weak companies are smartly blaming these small Tariffs instead of themselves for bad management … and who can really blame them for doing that? Excuses!”
Even as signs of nervousness surface, official White House forecasts, issued as recently as this summer, continue to call for growth to accelerate in the second half of this year.
While bond traders, business economists and poll respondents are expressing rising concern over the health of the economy, economists independent of the White House say there is no reason to believe a recession is inevitable in the United States over the next year or so.
Independent forecasts predict that economic growth in July, August and September will be about where it was in April, May and June: around 2 per cent, slow and steady.
“There really is no reason why the expansion can’t keep going,” Jerome Powell, chair of the Federal Reserve, said at his last news conference.
Many economists say that if a recession does arrive, cratering consumers will not be the root cause — and that Trump’s trade policies and the uncertainty they are stoking are the more likely culprit.
But some forecasters agree that fear itself could become a problem. Consumers drive about 70 per cent of U.S. economic activity, and if they become spooked and pull back on purchases, growth could slow more sharply.