The White House has threatened to impose tariffs on $2.4 billion in French exports in response to a new digital tax France instituted, which the administration says is aimed at U.S. firms. In October, the Trump administration imposed new levies on $7.5 billion of EU exports, in retaliation for what the World Trade Organization agreed is unfair subsidies to Leiden, Netherlands-based aerospace company Airbus SE AIR, -0.64%, and it has still hasn’t revoked threats to impose tariffs on European auto parts and automobiles, which analysts have predicted would be a major problem for auto makers globally.And I agree that trade deals by themselves may mean little. Underlying demand, prices paid/received and profit situations will likely be the bigger drivers of the economy (as they usually are). And that means jobs, output and consumer spending.
Meanwhile, the trade deal only rolled back a fraction of the new tariffs imposed by the U.S. and China during the past two years, with the U.S. keeping tariffs of between 7.5% and 25% on $370 billion in Chinese exports and China maintaining retaliatory duties on $110 billion in U.S. exports. JPMorgan analyst Dubravko Lakos-Bujas estimated that these already-existing tariffs are imposing an annual cost of $600 per American household and $5 in per-share earnings for the S&P 500.
“Nothing in phase one will specifically add much to global [economic] growth,” wrote Tom Essaye, president of the Sevens Report in a Thursday note to clients. “All we need to do is look to Treasurys and market internals to see that.”….
Some strategists make the case that, despite major equity benchmarks marching to new highs, the fundamental case for current valuations is becoming weaker, given tepid earnings growth, and likely won’t be helped much by the effects of a trade truce.
Now, maybe a surprising increase in the Philadelphia Federal Reserve’s manufacturing survey is a sign that maybe the manufacturing recession is ending. Obviously, we should wait to see if the same type of positivity is coming in more places and for more months, but if the manufacturing recession ends, and job growth and sales both home and abroad rebound, that's something that'll be a welcomed change from what we saw in most of 2019.
But on the flip side, the recently-finished Holiday shopping season was a "meh", as the Commerce Department’s retail sales report shows a decent-but-not-great seasonally adjusted increase of 0.3% for December. That followed another 0.3% increase in November, and is what a slow-growth economy would look like, not one that would warrant the S&P jumping by 2.7% for the first 2 weeks of 2020, or 16.5% over the last 5 months.
In fact, the retail sales and other recent economic reports prompted the Atlanta Federal Reserve to drop its estimates for 4th Quarter GDP to less than 2%.
We also saw real average hourly wages decline for December by 0.1%. Those average hourly wages haven't increased in 4 of the last 6 months, and only increased by a paltry 0.6% in 2019.
So what happens if the Main Street economy doesn't pick up in the coming months? The trade deals are all taken care of, and if the economy keeps slowing below 2% and real wages continue to stagnate, then why should the stock market keep going up on "trade optimism" and other con(fidence) games? And how sudden and large will the reversal be once that reality takes hold and people start cashing in their Bubbly profits?
Not trusting things at all these days.
From Joe Stiglitz, winner of the 2001 Nobel Prize in Economics:
ReplyDelete"To get a good reading on a country’s economic health, start by looking at the health of its citizens. If they are happy and prosperous, they will be healthy and live longer. Among developed countries, America sits at the bottom in this regard. US life expectancy, already relatively low, fell in each of the first two years of Trump’s presidency, and in 2017, midlife mortality reached its highest rate since World War II. This is not a surprise, because no president has worked harder to make sure that more Americans lack health insurance. Millions have lost their coverage, and the uninsured rate has risen, in just two years, from 10.9% to 13.7%.
One reason for declining life expectancy in America is what Anne Case and Nobel laureate economist Angus Deaton call deaths of despair, caused by alcohol, drug overdoses, and suicide. In 2017 (the most recent year for which good data are available), such deaths stood at almost four times their 1999 level.
The only time I have seen anything like these declines in health—outside of war or epidemics—was when I was chief economist of the World Bank and found out that mortality and morbidity data confirmed what our economic indicators suggested about the dismal state of the post-Soviet Russian economy."
Look at that. Mention of Russia, no less. But consider this:
"Making matters worse, the growth that has occurred is not environmentally sustainable – and even less so thanks to the Trump administration’s gutting of regulations that have passed stringent cost-benefit analyses. The air will be less breathable, the water less drinkable, and the planet more subject to climate change. In fact, losses related to climate change have already reached new highs in the US, which has suffered more property damage than any other country – reaching some 1.5% of GDP in 2017."
https://www.dailykos.com/blogs/main