AUGUST is political vacation time in North America and perhaps even more so in Europe. With the politicians out of time, commentators are able to devote some more attention to matters other than the increasingly seamy but nonetheless diverting circus that democratic politics has become.
In this political news vacuum, some analysts in New York and Washington have more latitude and website space to consider the American economy, and to share their thoughts. With the current Wall Street bull market in its ninth year, analysts can look sagacious, and indeed maybe prescient, to forecast the end of this market and the return of recession or worse. The New York Times and several other publications are looking at a strong American economy and wondering what might torpedo it.
It must first be said the US economy is rolling right along and there is little evidence that Donald Trump has done anything since taking office in January 2017 to sabotage that performance. In fact, if the American economy continues its expansion next year, its positive growth streak will reach a record ten straight years. The US economy added 157,000 jobs in July, of which a significant 37,000 were in the vital manufacturing sector.
It is little wonder Democrats on the prowl for votes in November are turning their focus to health care and not to the economy. If the Republicans can remember that “it’s the economy, stupid!” they may be tougher to beat in three months than many pundits think. The US economy grew 4.1 percent in July, and the overall unemployment rate fell to 3.9 percent. The American central bank regards a 4.5 percent figure as full employment.
Another good sign for the US - and for Republicans - is the unemployment rate for those without a high school degree has dropped to its lowest level of 5.1 percent in the 26 years since such statistics have been tracked. For reference, during the Great Recession in 2009, that same rate was 15.6 percent. This is especially good news for Trump and the Republicans because these undereducated workers are at the core of his and his party’s support.
Last week, the American Federal Reserve Bank raised its forecast for the US economy from “solid” to “strong”. The central bank is expected to raise the prime lending rate twice more this year, since the economy is evidently strong and inflation has risen to two percent annually.
There’s more good economic news in US Department of Labour figures that indicate there are now better job opportunities for American workers without college degrees, who represent a majority of the workforce. And the numbers of workers compelled to take part time jobs without many or any benefits such as health care has dropped to its lowest level since 2001.
As Trump’s economy sails merrily along, denying global warming, rewarding polluters, initiating dangerous trade disputes and largely ignoring social and economic justice, where are the mines that could blow it all up?
The Times identifies three possibilities. The first might be an inauspiciously timed Federal Reserve decision to raise interest rates just as the stimulus produced by Trump’s 2018 tax cuts starts to fade. That could occur as soon as 2020, but if the effects are not felt by voters until after that year’s election, Trump’s tax policy would be validated as the political masterstroke he intended it to be.
A second possibility is the bursting of the increasing American corporate debt bubble. With the tax cuts, low inflation and low interest rates, US corporate debt has now risen to 25 percent of GDP. Rising interest rates could make some of that debt insupportable, and businesses could fail.
Thirdly, Trump’s tariff wars could precipitate a global economic slowdown. Even though exports only represent eight percent of GDP in the $20 trillion US economy, a slowdown overseas could reduce overall corporate confidence worldwide.
Management of the American political economy by James Baker, Ronald Reagan’s political right-hand man, was correctly celebrated. If Baker’s successors in this White House can figure out how to do as well, and can avoid the potential economic mines for another 27 months, Trump is going to be hard to beat.