Jobs Trump Impeachment Imbroglio

Consumers increased their early holiday spending — from Thanksgiving Day through Cyber Monday — by 16%, with $124M shopping in stores and $142M online. But there are six fewer shopping days between Thanksgiving and Christmas, so it is only to be expected that these early shopping days would be busier for retailers than the same five days last year. No harbinger here.

The service sector continues to expand, with orders and employment rising. But at a slower pace due to the weakest reading of business activity since 2010. No clear harbinger here.

Share prices continue to break records, rising about 25% this year. The optimists control the trading floor. But pessimists control the board rooms. Business investment continues to lag, as major corporations hold back spending pending better news from the trade front. Either investors are drinking the Kool-Aid, or corporate executives are missing an opportunity to capitalize on rapid growth in 2020. Both groups are clever, so no harbinger here.

Donald Trump tweets that he is in no rush to make a deal with China, “In some ways I like the idea of waiting until after the election.” Immediately before tweeting that negotiations with the Chinese delegation are going along nicely. No harbinger here. (In any event, the White House is not the place in which one is likely to find a clue to durable policy.)

So what’s a poor economist to do? Focus on the data that drive the economy: jobs and consumer spending, the latter accounting for 70% of economic activity. And on policy.

The economy added a surprisingly high 266,000 jobs in November, the unemployment rate dropped a bit to 3.5% (3.2% for adult men and women), the lowest level in fifty years, data for September and October were revised upward by 41,000, and average hourly wages are up 3.1% year-over-year, with those of lower paid workers rising faster than higher paid, supervisory workers.

A corollary is a happy consumer. The University of Michigan index of consumer sentiment, released a few hours after Friday’s jobs report, rose sharply “indicating the continuation of the expansion based on consumer spending,” according to the University’s pollsters. Even more important than what consumers tell pollsters about how they are feeling, is what they are doing.

  • Household spending picked up in October, as did orders for long-lived durable goods;
  • auto sales surprised on the upside in November by beating last year’s figure by about 2%;
  • responding to lower mortgage rates (3.68% on a 30-year mortgage compared to almost 5% a year ago), lower home prices, and a good jobs market, buyers snapped up new homes in the past two months at the fastest pace in more than twelve years.

If you want only good news, skip the next paragraph. Robert Kaplan, President of the Federal Reserve Bank of Dallas, warns that high corporate debt well might amplify any downturn by forcing layoffs or bankruptcies of companies pressed to meet interest and repayment schedules. Investors are shying away from distressed borrowers, with 11.6% of the bonds in the Ice (Intercontinental Exchange) index yielding more than ten percentage points above equivalent government bonds. The Financial Stability Oversight Council, composed of representatives of the Fed and the Treasury, worries about the stability of lightly regulated mortgage lending companies, the growth of digital assets such as bitcoin, and high levels of borrowing by nonfinancial companies. Oh yes, the unsustainable budget deficit remains, well, unsustainable.

Another place to look for guidance to the future course of the economy are the policies that drive some of the data reported above. With the Fed electing to stand pat, U.S. monetary policy is now on hold, but Morgan Stanley reports that 20 of the 22 central banks it tracks had eased monetary policy over the past year.

Trade policy is another matter: America is the lead player. If, as is likely, the President’s tariffs succeed in persuading China to at least moderate some of its predatory trade practices, he would ring up a big win for the US economy. Unfortunately, that has emboldened him to claim the title of “Tariff Man”, and apply those taxes — which is what tariffs are — to situations where they would be counter-productive.

He is crafting a trade policy that reflects his impenetrable, irremediable ignorance of economics — what legendary journalist Pete Hamill, a close observer of Donald-Trump-the-New-York-property-developer, some thirty years ago called Trump’s insistence on “the virtues of stupidity”. Because the Brazilian and Argentine economies are far weaker than America’s, their currencies have depreciated against the dollar. Their currencies are weak because their economies are weak. The dollar is strong — and rose after the jobs report — because the American economy is strong. And not many countries see the Argentine peso or Brazil’s real as alternative safe havens to the US dollar.

That’s not how Trump sees it. Add to economic ignorance Trump’s perpetual search for an enemy, and the inevitable result is a charge that our trading partners are manipulating their currencies to make their exports cheaper. To offset that, raise tariffs. After all, in the President’s imagined world, our trading partners rather than American consumers pay those tariffs. Alternatively, the “boneheads” at the Fed could lower interest rates “to zero or less”, driving down the dollar. Whether tariffs go up or the dollar down as a result of lower interest rates, the result is the same. Americans’ pay cheques buy less, lowering their standard of living.

All of which leaves voters with an unpleasant choice. Trump offers a tough, sensible trade policy towards China. But his ignorance of how international markets work threatens Americans with higher prices and a loss of the efficiencies of the international division of labor.

The progressive Democrats offer a candidate whose view of national fiscal policy is to run the presses to pay for a free lunch, after a free breakfast and before a free dinner, to complement free college education and free health care. No worry. If runaway spending causes inflation, the courageous politicians peopling the Congress will nip it in the bud by raising taxes.

More moderate Democrats might persuade a deadlocked convention, now a real possibility, to confer the chore of beating Trump on Mike Bloomberg, a self-described “short, Jewish, billionaire from New York”, and defender of Wall Street. Not a prescription for instant popularity in large parts of the country. The Democrat-turned-Republican-turned-Democrat — a re-ratter in the tradition of Winston Churchill — is also an über nanny. He knows what Americans should be permitted to drink and eat and smoke. No super-size fizzy drinks, no trans fats, no salted anything, no smoking.

Since the impeachment imbroglio has had no effect on the President’s poll ratings, if the jobs market stays strong, and consumers remain confident, the Democrats’ choice of candidate might prove irrelevant. Even Trump’s own goals won’t deny him a second term.