*Bad polls & bad economic data put pressure on Trump US
*
*https://www.guancha.cn/LuoSiYi/2019_06_20_506307_s.shtml*
*John Ross*
(John Ross is a senior foreign researcher at the Chongyang Financial
Research Institute of China People's University of China. He is a
British scholar and former Director of the London Economic and Business
Policy Agency. He has devoted himself to researching Chinese society for
more than 30 years and has written more than 200 articles on China's
economy and its relationship with the world economy.)
share markets rose sharply on news of the announcement that Presidents
Xi and Trump would meet at the G20 summit – as the Financial Times
simply summarised it ‘Trump plan to meet Xi on trade sends US equities
sharply higher’. This was a welcome piece of goods news for President
Trump after a period during which he had been receiving bad news both on
the opinion polls for his re-election and for the US economy. Naturally
there are many aspects of the planned meeting that only those involved
in the negotiations will know, but it is worth noting the objective
pressures which are now bearing down on Trump.
*Negative polls for Trump at the beginning of the Presidential election
campaign*
The first, and probably most important pressure on President Trump, was
that opinion polls leading to the official launch of his re-election
campaign on 18 June had been unfavourable for several months. Days
before his official relaunch event his campaign dismissed three of his
five polling advisers after leaks of internal polling showed the
president had been trailing former Democrat Joe Biden in key states
which would decide the outcome of the 2020 election – for example in
Minnesota Trump trailed Biden 40% to 54% and in Michigan by 40% to 53%.
Analysing 17 states, polling taken in March showed Trump trailing Biden
by double digits in key swing states such as Wisconsin, Pennsylvania,
Florida and Michigan. More recent polls on 9-12 June, released by Fox
News, a strongly pro-Trump TV channel, showed Trump nationally trailing
nine percent behind Democrat Bernie Sanders (40% to 49%) and ten percent
behind Biden (39% to 49%).
In summary as the Presidential election campaign was launched Trump was
trailing badly behind Democratic rivals. In that political situation,
evidently, the prospects for the US economy in 2019-2020 were crucial
for Trump.
*Prospects for the US economy in 2019-2020*
Regarding these economic prospects for the US in 2019-2020 two
substantially different perspectives for the US economy in 2019-20 had
been put forward. The first, that of the Trump administration itself,
echoed by some media in China, argued that due to the US tax cuts, or
other reasons, the US economy would speed up in 2019 – which would
evidently be good political news for Trump. In March 2019, in its
official budget forecasts, the Trump administration projected 3.2% GDP
growth in 2019 and 3.1% in 2020 – both faster than the 2.9% in 2018 and
in line with President Trump’s claim that the US economy would grow at
least 3% a year during his presidency.
The second perspective, held by the IMF, the present author, and others,
was that the US economy would experience downward pressure in 2019 – not
that there would be a recession but that the US economy would slow. The
most recent US economic data has clearly confirmed this latter perspective.
US total industrial production, including the oil and gas sector, had
stalled since the end of 2018 – by May US total industrial production
was 0.9% lower than in December 2018. The decline in US manufacturing
production, 1.5% in the same period, was sharper. In May 2019 US
manufacturing production was still 4.8% lower than its level more than
11 years previously in December 2007 - the Trump policy to attempt to
strongly revive US manufacturing production had been a failure.
In terms of Purchasing Managers Indexes (PMI), the US Composite PMI
stood at 50.9 in May 2019 sharply down from 53.0 in April and the
weakest expansion in the private sector since May 2016. The US
manufacturing PMI in the same month fell to its lowest level since 2009
– a manufacturing PMI of 50.5 vs 52.6 in April, while the services PMI
slowed to a 39-month low – at 50.9 at vs 53 in April.
US jobs data showed the same slowing trend. In May the US added only
75,000 non-farm payroll jobs compared to 224,000 in April and an average
144,000 in the three previous months.
*Analysts who believe there will be a recession*
Some important Western and US analysts believed that this slowing was so
severe it indicated the US would enter a recession – that is at least
two quarters of negative growth. For example, John Authers, Senior
Bloomberg Editor for Markets and former Chief Markets Commentator for
the Financial Times, made the following analysis on 18 June under the
self-explanatory headline ‘Markets Are Acting Like a Recession Is
Unavoidable’ with the subheading ‘It’s not just the bond market that’s
signalling a severe economic slowdown.’
‘Would it be possible to explain what is going on in markets without
making reference to the deteriorating U.S.-China trade relations? I am
beginning to suspect that it would. Bond markets may be behaving as
though they are bracing for something terrible to happen because traders
are, indeed, scared that something terrible is going to happen.
‘Exhibit A is the Federal Reserve Bank of New York’s Empire State
Manufacturing Index that was released Monday. It was terrible, showing
the biggest monthly decline since the last recession… it doesn’t drop
this low for long without presaging a true recession to come.
‘Conditions for the U.S. trucking industry, often regarded as a leading
indicator for manufacturing, look no better…. the FTR Trucking
Conditions Index… combines several different factors about demand for
trucking. Figures below zero show a risk of contraction.
‘Industrial metals provide another strong market-based recession
indicator. The Bloomberg Industrial Metals Subindex suggests that the
optimism on growth that accompanied the first year of the Trump
administration has dissipated.
Industrial Metals Subindex)
‘Looking at the U.S. stock market, we see the type of relative
performance that would be expected in the run-up to a recession, even if
the overall market continues to show robust performance… Investors tend
not to buy utilities on the scale that we have seen lately unless they
are pessimistic. There are technical factors in the bond market that
have driven the current deflation scare, but there do appear to be a
number of factors pointing toward an economic slowdown.’
*A slowdown**not**a recession*
The analysis of the present author is that the view that the US economy
will move into recession this year are exaggerated, for reasons which
are analysed at length in my book ‘Don’t Misunderstand China’s Economy’.
US growth in 2018 was 2.9% - at the peak of the upswing of a business
cycle. It would be an extraordinarily sharp decline, approaching the
scale of the international financial crisis of 2008, for the US to fall
from the peak of a business cycle to a recession in a single year.
Conditions for such a repeat of the greatest financial crisis for 80
years, since the Great Depression, are not indicated at present. Instead
a slowdown of the US economy, not an actual recession, will occur in
2019. The IMF itself projects a fall in US growth from 2.9% in 2018 to
2.3% in 2019 – I would estimate that growth could be slightly higher,
but the IMF figure is not unreasonable. But what such a trend indicates
is that the Trump administration’s claims that US growth would
accelerate are false. Instead growthin 2019 would fall. And growth in
2020 would be lower than in 2019 – a serious issue for Trump as 2020 is
an election year.
Certainly, information which leaked on the same day that the Xi Jinping
– Trump summit was announced indicated clearly the Trump administration
felt seriously concerned about the state of the US economy. It was
leaked to Bloomberg that, in an unprecedented move, the Trump
administration had explored if it was possible legally to dismiss their
own appointed Chair of the US Federal Reserve Jerome Powell – who had
only take up office in February 2018. This was immediately understood
to indicate that the Trump administration feared the downward pressure
on the US economy.
It is important not to exaggerate. It is still 17 months to the US
presidential election. This means the bad polling numbers for Trump can
still be overcome – but they are clearly a negative for him. While some
US analysts project a recession in 2019, for the reasons given here it
is much more likely that the US economy will slow in 2019 rather than a
recession occur – although if the economy slows significantly in 2019 a
recession in 2020 is entirely not impossible, which would clearly be
ultra- negative for Trump. But even without an actual recession what
this combination of bad polling numbers and economic deceleration does
produce is clearly pressure on the Trump administration.
This is not the only factor in the situation, but it is clearly part of
the background to the Xi-Trump summit at the G20.
This article was finished before it was made public that the US side
requested the phone call with China which led to agreement on the Xi
Jinping-Trump summit. This information is in line with the analysis in
the article.1111MicrosoftInternetExplorer402DocumentNotSpecified7.8
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