Re­ces­sion talk fad­ing at end of year

Baltimore Sun Sunday - - BUSINESS - Jill Sch­lesinger

Re­mem­ber back in Au­gust when econ­o­mists and in­vestors were gnash­ing their teeth about a loom­ing re­ces­sion?

For the last four months, eco­nomic data have mostly im­proved, un­der­scored by the boffo Novem­ber jobs re­port. Job growth has av­er­aged 180,000 per month thus far in 2019, down from the av­er­age monthly gain of 223,000 in 2018, but still strong for the 11th year of an ex­pan­sion.

The un­em­ploy­ment rate edged down to match a 50-year low of 3.5%. The job­less rate has re­mained at or be­low 4% for 21 straight months, the long­est such stretch since the 1960s. The broader rate slid to 6.9%, match­ing a post cy­cle low in Au­gust — the low­est read­ing since De­cem­ber 2000.

Av­er­age hourly wages were up 3.1% from a year ago, be­low the peak hit last Fe­bru­ary. Still, worker pay is more than a full per­cent­age point ahead of the over­all inflation rate, which may ex­plain why many con­sumers say they are feel­ing jolly this hol­i­day sea­son.

The Fed­eral Re­serve un­der­scored the over­all im­prove­ment in the econ­omy dur­ing its fi­nal pol­icy meet­ing of the year. Af­ter cut­ting in­ter­est rates by a quar­ter of a per­cent­age point three times in the sec­ond half of 2019, the cen­tral bankers de­cided to put in­ter­est rate pol­icy on hold, po­ten­tially for a while. In a unan­i­mous de­ci­sion, of­fi­cials kept the cur­rent level of rates steady, be­liev­ing that 1.5 to 1.75% is the right range to main­tain a bal­anced econ­omy.

The Fed also noted that con­sumers have been do­ing the heavy lift­ing this year, with house­hold spend­ing ris­ing at a strong pace, but also un­der­scored that busi­ness in­vest­ments and ex­ports re­main weak.

Looking ahead, the Fed sees mod­er­ate growth and low un­em­ploy­ment. As a re­sult, they an­tic­i­pate no in­ter­est rate moves in 2020 and just one hike in each of the sub­se­quent two years.

That’s rough news for savers, who just a year ago were fi­nally see­ing in­ter­est rates creep up in their sav­ings and money mar­ket ac­counts. Con­versely, bor­row­ers are likely to see low costs for short-term loans, like credit cards, au­tos and some ad­justable rate mortgages. For stock in­vestors, an ac­com­moda­tive Fed has put the cherry on the top of strong 2019 per­for­mance.

Ad­ding to the De­cem­ber cheer was a trade truce of sorts. Af­ter 19 months of tit-for-tat mea­sures and two days be­fore the U.S. was set to im­pose another round of tar­iffs, the world’s two largest economies agreed upon a par­tial trade agree­ment. The U.S. agreed to hold off on the im­po­si­tion of 15% tar­iffs on $156 bil­lion worth of Chi­nese goods.

In ex­change, U.S. of­fi­cials said that China would in­crease pur­chases of Amer­i­can food, en­ergy, man­u­fac­tured goods and ser­vices by a to­tal of $200 bil­lion over the next two years, in­clud­ing a com­mit­ment to in­crease agri­cul­tural prod­uct pur­chases from $8 bil­lion to $40 bil­lion. The prob­lem is that Bei­jing has not ac­knowl­edged those numbers, which has led some an­a­lysts to be a bit more skep­ti­cal about some of the larger out­stand­ing struc­tural is­sues, like in­tel­lec­tual prop­erty and tech­nol­ogy trans­fer.

Al­though the deal is not re­ally done, the trade war mov­ing from a boil to a sim­mer has helped im­prove eco­nomic sen­ti­ment and cer­tainly made the fears of a re­ces­sion from just four months be­fore, seem like a dis­tant mem­ory.

Jill Sch­lesinger, CFP, is a CBS News busi­ness an­a­lyst. A for­mer op­tions trader and CIO of an in­vest­ment ad­vi­sory firm, she wel­comes com­ments and ques­tions at [email protected]­lon­money.com. Check her web­site at www.jil­lon­money.com.

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