For US economy, storm clouds may be on the horizon
Emerging signs of weakness in major economic sectors, including auto manufacturing, agriculture and home building, are prompting some forecasters to warn that one of the longest periods of economic growth in U.S. history may be approaching the end of its run.
The economy has been a picture of health, expanding at a 3.5 percent annual pace during the July-September quarter and driving the unemployment rate to 3.7 percent, the lowest level in almost half a century. But General Motors’ plans to cut 14,000 jobs and shutter five factories reinforces other recent indications that the better part of the expansion is now in the rearview mirror.
“We’re in the 10th year of the expansion, and there are some soft points,” said Ellen Hughes-Cromwick, a former chief economist at Ford Motor Co. and the Commerce Department who is now on the faculty at the University of Michigan. “The auto sales cycle has peaked, and the housing cycle also has peaked.”
Hughes-Cromwick said higher interest rates, combined with rising inflation and faltering corporate confidence, could set the stage for a recession. In that scenario, she said, “I don’t really see how the economy can keep powering ahead.”
The vast majority of prominent economic forecasters, including various arms of the federal government and all of the major Wall Street banks, still regard continued growth as the most likely outcome for the U.S. economy in 2019. But there is a broad consensus that the pace of growth will slow as the sugar high provided by the Trump administration’s $1.5 trillion tax cut and spending increases begins to wear off. And some forecasters see a small, but growing, chance of a recession.
President Donald Trump’s chief economic adviser, Larry Kudlow, tried to play down such concerns Tuesday, insisting that the overall health of the economy remained robust.
“There’s a certain amount of pessimism I’m reading about, maybe it has to do with a mild stock market correction,” Kudlow said, before describing such pessimism as misplaced. He rattled off recent economic data – including the most recent jobs report, which he described as “very spiffy” – to highlight the strength of the U.S. economy, before his conclusion: “We’re in very good shape.”
Investors are showing signs of concern about the ability of the corporate sector to maintain skyhigh levels of profitability.