President Trump’s economic advisers insist the shutdown their boss provoked wouldn’t do significant harm to the economy. Evidence suggests otherwise. This week some new economic data points to nervousness about the economy.
Now, the slide in consumer confidence began before the shutdown, to be sure. However, that slide coincided with another Trump blunder — the opening of a trade war and the ensuing market volatility. (Remember the stock market plunged in December and had the worst year in a decade.) Given that nearly 70 percent of the U.S. economy is consumer spending, a downturn in confidence and retrenchment in spending would be worrisome.
That’s what some outside economic groups are predicting:
The National Federation of Independent Business (NFIB), an advocacy group, did a survey of its members. In addition to the drop in optimism, it also found expectations for lower sales in upcoming months.The Economic Advisory Committee of the American Bankers Association is predicting that consumer spending in Q4 will fall to a growth rate of 2.2 percent, down from 2.9 percent a year ago. Many retailers rely on that time of year – the holiday shopping season – for a huge chunk in their revenue.
Is this a temporary glitch or a sign of a recession? “Extended drops in consumer confidence are often harbingers of recession. But temporary ones do happen and are nothing to sweat about,” said Austan Goolsbee, former chairman of the Council of Economic Advisers. “Let’s hope it’s temporary. Government shutdowns do tend to drop consumer confidence but most shutdowns are short-lived so it rebounds quickly.”
Then again, we haven’t had a president who intentionally created chaos and made ludicrous policy pronouncements. As former car czar Steven Rattner told me, “John Maynard Keynes coined the term ‘animal spirits’ to recognize that not everything about how an economy performs is driven by policy actions. When consumer confidence falls, for example, it can have a material negative economic effect if Americans cut back on their spending.” He added, “In extreme cases, expansions can become recessions.”
Two other factors are key as we look at the near-term economic outlook. First, the tax plan was a bust insofar as it did not deliver on the promised increase in wages and investment. Its temporary stimulus is wearing off and, with it, the certainty that good times will continue indefinitely. (The business cycle still exists.) Second, worldwide growth is slowing, especially in China and Mexico. If U.S. consumer demand slows and other countries buy less, we really will have downward pressure on the economy.