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Bow Ties and British Accents – Trump Recession Fears

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It’s hard to read or watch an economic report without triggering a yawn. However, add a bow tie to a British economist and you can’t help but smile. This marginally comical video (link also below) brought up a question that’s similar to what I received in bulk this past week: will Trump policies cause a recession or an economic boom? My short answer is neither.

At first glance, the stock market seems perfectly happy with Trump soon being in the White House. But, the stock market is no longer a solid predictor of future economic well-being. While it’s technically a Leading Indicator, week-to-week and month-to-month performance no longer “leads” nor “indicates” anything about underlying economic conditions. Despite the current enthusiasm about the economy, the underlying economic data still fails to impress.

One concern is that we are simply seeing a temporary boost to economic activity that will trigger a sharper downturn than we otherwise would have realized next year or the year after. I hope this isn’t the case, and that we see higher rates of economic growth, but it’s worthy of discussion. Another concern is that after the Trump honeymoon is over, or at least lessens, uncertainty about a number of things could weigh on the economy in the coming year. We still need to figure out the extent the U.S. government will be messing with international trade policies, tax rates, the budget deficit, etc. Over the longer term, reduced regulation, investment in infrastructure, and more competitive tax rates will have a positive impact on the economy unless we borrow excessively to implement the plans.

Uncertainty isn’t always a bad thing, but it tends to pull economic numbers lower. The right policy changes could push the numbers up. It’s not clear how this will play out. Trump related influences won’t likely cause a recession or an economic boom, but the business cycle may be more volatile going forward. The optimists are too optimistic, and the pessimists are too pessimistic. Just be cool for now.

Keep an eye on job growth and GDP figures. If the monthly job numbers reach 250k to 300k, and GDP is in the 2.5% to 3.0% range, then the economic data may match people’s current enthusiasm. If the economic data continues to be unimpressive, we may see a sharper correction in the first half of 2017. Or, I could be completely wrong. This is uncharted territory. Here is the link to the cheeky bow tie fellow…

https://finance.yahoo.com/video/trump-recession-divergence-next-u-165443334.html

Author’s note: If there is a particular economic or policy issue you would like covered in a later publication feel free to send your ideas and/or comments to info@roundsconsulting.com. 

JimRounds

Post by: Jim Rounds

 

 

 

 

 

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