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John Ross: US economy slowing but not in danger of recession


By John Ross     Source: Global Times    Published: 2019-10-9

Will the US enter a recession in 2020, a US presidential election year, or will its economy only slow further without entering actual recession? That is the discussion among the overwhelming majority of US economists.

To illustrate this, Bloomberg, the most important US financial communications network, asked on October 5, "Is the US Headed for a Recession?" Its analysis began, "Through all the noise around US data this week, a clear signal is emerging: The world's biggest economy is slowing down. The question now is, how badly?"

This US reality, and serious US economic analysis, is so different from the Trump administration's propaganda that it is necessary to analyze the real facts.

This author considers that there is a risk of recession for the US economy in 2020, but it is more likely that it will slow without entering recession - technically defined as two successive quarters of negative growth. However, as 2020 is a presidential election year, this economic slowdown puts major political pressure on US President Donald Trump.

The slowdown of the US economy is clear. During the last three years, the US has passed through a normal upturn and now a downturn of the US business cycle. The effects of this cycle were much more powerful than the Trump administration's policy measures predicted.

Trump's election in 2016 was greatly aided by the US economy's poor performance that year. As Trump was elected at the end cycle, it then naturally turned upward. The upturn peaked during the second quarter of 2018 with 3.2 percent year-on-year GDP growth. Trump's timing in launching trade aggression against China was therefore tactically skilful - at that time the US economy was growing at its most rapid pace in the business cycle.

Since then, the US' cycle has progressively turned down. According to the latest data, the US' GDP growth had fallen to 2.3 percent by the second quarter of 2019.

The situation for US manufacturing is even more serious. The US Institute for Supply Management manufacturing Purchasing Managers Index dropped to 47.8 in September 2019 - a contraction with the steepest monthly decline since June 2009.

US companies' investment, another critical index of how they forecast the future, has seen a sharp drop. US private companies were pessimistic about the US economy's prospects and therefore saw no need to expand their investment capacity.

The Trump administration has attempted to conceal these facts with claims that the US economy is continuing to grow strongly. In particular, it has claimed that US unemployment is at a 50 year low. To put it simply in Trump's own terms, this is "fake news." US unemployment is measured by those seeking paid work, but many people in the US have been unemployed for so long that they no longer attempt to register for such work.

The correct economic statistic to employ here is the percentage of the US' working-age population currently employed. This figure dropped from 66 percent in December 2007 to 63.2 percent. When Trump became president in January 2017, this figure was at 62.9 percent, and it was 63.2 percent in September 2019.

In short, claiming that the US economy is experiencing strong growth due to low levels of unemployment is statistical fraud. Official unemployment is low only because Americans are demoralised by long-term unemployment and no longer seek work. The key trend in this aspect of the US economy, as analyzed by US economists and shown in data, is the sharply slowing US economy.

If the US is slowing in such a manner, will it enter recession in 2020 - recession being defined as two quarters of negative growth? The present author posits that the answer is "no," due to a question of the tempo of changes in the US economy. In the second quarter of 2019, the latest available data, the US economy was growing at 2.3 percent year-on-year. It is unlikely that the US will slow from this to negative growth in just one year. More probable is that the slowdown of the US economy will continue, but without entering a technical recession.

Yet while the difference between a recession and slow growth is important for economists, it is not politically crucial for Trump. The sharp slowdown of the US economy is bad news for him even if a technical US recession does not follow.  Trump's political prospects, following the slowing trends in the US economy likely to continue during the next year, are significantly negative.

John Ross is senior fellow at Chongyang Institute for Financial Studies, Renmin University of China.

Key Words: US economy   recession   RDCY   John Ross  

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