Recession or resurgence? Economic data sends mixed messages
Economists agree: The U.S. will either extend the longest period of economic expansion in our nation’s history or fall into recession sometime next year.
It all depends on whether you think the glass is half full or half empty.
For three years, I have fretted about an economic downturn. Perhaps my experience covering natural and human-made disasters has taught me that the unexpected can strike any second with devastating consequences. Preparing for the worst always seems like the safe play.
Professionals who get paid to predict the future, though, cannot rely on instinct. They justify their prognostications with hard data, trend lines and pattern recognition. But these days, the data is conflicting.
The U.S. added 128,000 jobs in October, beating analysts’ expectations. Wages were 3 percent higher than last year, according to the Labor Department. Unemployment remains
at a very low 3.6 percent.
More than two-thirds of economic activity comes from the consumer sector, so when Americans are working, most of the economy hums. In the third quarter of 2019, U.S. consumption jumped 2.9 percent year-over-year, with Americans buying 17.5 percent more recreational goods and vehicles than they did in the same period of 2018.
“The economy seems positioned to continue to grow, albeit at a very modest pace,” Dean Baker, a senior economist at the left-leaning Center for Economic and Policy Research, wrote in qualified praise. “Growth was overwhelmingly driven by consumption, not investment.”
Most economists blame the slower growth on the U.S.-China trade war, but that could soon change. President Donald Trump says he is near striking a partial resolution with Chinese President Xi Jinping that should lead to lower tariffs. Economic activity could bounce back significantly.
Stock indexes are setting new records in anticipation, driving up the value of America’s retirement funds. Consumer confidence remains high, which usually means they are ready to spend.
Pessimists, though, have plenty of data supporting their dire expectations.
Earnings reported by corporations in the S&P 500 Index are down 2.7 percent compared to last year. Business investment was down over the previous six months, slipping 3 percent in the third quarter.
Purchasing manager indexes across the country and around the world are showing shrinking demand for goods. Debts are also growing, both at companies and households, which will dampen future spending.
U.S. corporations have more than $4 trillion in bond debt coming due over the next five years, according to Oxford Economics, a forecasting firm. Last month, the Fitch’s Ratings agency raised the value of corporate bank loans it considers in danger of defaulting to $107 billion. (Fitch is owned by Hearst Corp., the parent company of the Houston Chronicle.)
Corporate debt is reaching dangerous proportions, making it tougher for companies to register profits and refinance. Corporations outside the financial sector have added short-term debt at a rate faster than economic growth, according to Satyam Panday, a senior economist at S&P Global, a credit rating agency.
“Further deterioration in the (non-banking) sector’s financial health is likely,” he wrote in a recent report.
Among consumers, unsecured personal loans are the fastest-growing category of debt, reaching $305 billion this year, a 12 percent increase compared to last year. The average amount of a personal loan in Texas is $14,565, according to the Experian credit agency.
More than $50 billion of this debt is from low- and middle-class families who have taken out online installment loans to pay off credit cards or payday loans, according to reporting by the Bloomberg news agency. But many of these loans have the same sky-high interest rates offered by predatory lenders.
Only one-third of Americans say their personal finances have improved since President Donald Trump took office, according to polling by BankRate.com, which helps consumers compare financial products. Nearly half say their finances have stayed the same.
The average American’s mood is reflected in existing home sales and new construction starts, which combined have been flat for the last three years.
Cities, meanwhile, are reporting the first drop in tax revenue in seven years, according to a survey of 554 municipal finance officers by the National League of Cities. Based on their experience, twothirds of city halls say this is an indicator that a recession is around the corner.
Can the American consumer, with the help of the Federal Reserve, pull the U.S. economy through the current deceleration and into another growth cycle? Many economists seem to think so, if nothing extraordinary happens.
The caveat, though, is the problem, which brings me back to my days covering unanticipated death and destruction. Extraordinary things happen on a pretty regular basis. Trend lines are never a sound basis for a bet.