July 11, 2019
By: Harris L. Kempner, Jr. President
Interestingly, the U.S. economy appears to us to be bifurcated. The largest part of the economy, the consumer, is in fine shape. Jobs are plentiful, and consumer confidence is at a new high for the 10-year expansion. Consumer spending is the source of the present U.S. economic strength. On the other hand, the manufacturing portion of the economy is in a mini-recession as indicated by recent PMI statistics and business confidence is very low. The consumer spending is the basis of 70% of the U.S. economy and rarely has that been more important. The Fed, according to Chairman Powell’s testimony, looks to be still in a mode of reducing interest rates rather than tightening, which will help. We do not see any signs of a recession and still expect 2%+ U.S. GDP growth during the rest of the year.
This is added to by the enormous amount of pump-priming that the Chinese are doing. Some estimates have their most recent spending at 3% of total GDP. This should be enough to make sure that the Chinese do not slow down much in their consumption and there are some early indications that it may be turning them around into a positive for the world economy.
Nevertheless, the imponderable still remains – trade disputes between the U.S., China, and Europe, and the lack of signature of the treaty between the U.S., Canada, and Mexico. Until these are resolved, there really are massive uncertainties, which are almost certainly the reasons that manufacturing in the United States is in the mini-recession discussed above. These will continue to be a serious drag until resolved.