Yahoo Finance This week in Trumponomics: The recession is off
President Trump had an awful week. Impeachment odds probably rose in the Ukraine scandal, and Trump’s abdication in Syria inflamed many members of his own Republican party.
But those matters don’t affect financial markets, and in the economy, there’s been a subtle but important development: Recession fears have begun to ease. Just six weeks ago, the bond market was signaling trouble and consumers were starting to worry. But those warnings now look like a false alarm as recession indicators blink off.
An important measure of interest rates known as the yield curve recently flipped from suggesting a recession is coming to suggesting it isn’t. The difference between rates on 3-month Treasuries and 10-year Treasuries inverted in May, meaning long-term rates fell below short-term rates. That typically happens when investors expect a downturn that will force down rates in the future.
The 3-month/10-year inversion reached its deepest point at the end of August. But it recently uninverted, with long-term rates once again higher than short-term rates, as they should be in a growing economy. Another measure of the yield curve, the difference between 2-year and 10-year notes, has also improved. That curve also briefly inverted at the end of August, but has since rebounded to healthier levels.
A handful of forecasting firms have also made predictions recently about the outcome of the 2020 presidential election, based on economic factors and historical precedents. They all forecast economic conditions in November 2020 similar to what we have now: modest economic growth, low unemployment and wage growth stronger than inflation. In other words, no recession, which improves Trump’s reelection odds.
The Yahoo Finance Trump-o-meter measures developments in the economy under President Trump, not Trump’s performance, per se. The economic outlook has improved, which is why this week’s reading is BIGLY, the second highest.
Problems remain. The manufacturing sector is contracting, thanks in large part to Trump’s protectionist trade war. Retail sales slumped in September, as consumers became warier. The economy is probably growing at a tepid 2% or so, well below Trump’s promise of 3% or even 4% growth under his tenure.
Trump himself faces graver trouble. It seems increasingly likely the House will impeach Trump, given that he has all but admitted he illegally held up aid money for Ukraine to extort damaging information on Democratic political rival Joe Biden. Witnesses continue to incriminate Trump, and there’s apparently a criminal investigation into his lawyer-henchman Rudy Giuliani.
Trump’s Syria debacle is beginning to cost him support among Republican senators that could be crucial if the Senate holds a trial on whether to convict Trump and drive him from office. Trump seems to assume he’s invulnerable in the Senate, where it would take 24 Republicans voting against him to send him packing. But Washington analysts are beginning to handicap the odds of a Pence presidency, with perhaps Nikki Haley as vice president. A sound economy would benefit Pence too, if he turns out to be the Republican nominee in 2020.
Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. Confidential tip line: rickjnewman@yahoo.com. Encrypted communication available. Click here to get Rick’s stories by email.
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