Recession May Be Closer Than It Appears

Written by SK Ashby

I don't think anyone should panic just yet, but separate branches of the Federal Reserve just updated their estimates for economic growth during the fourth quarter of the year and their numbers are far below previous estimates.

According to the Atlanta and New York Fed, growth during the fourth quarter -- which includes the cornerstone holiday shopping season -- could be as low at 0.3 percent.

From CNBC:

According to the Atlanta Fed’s GDPNow, growth is likely to come in at just 0.3%. The New York Fed’s GDP Nowcast is showing a gain of 0.4%.

Both projections have come on the heels of recent news that took down previously meager expectations to just above negative territory. Friday releases indicating lackluster retail sales and production growth took the Atlanta tracker down from 1% a week ago and the New York measure from 0.7% earlier this week and as high as 2% back in September.

Economic data has largely remained a bit better than expectations but has dipped lately compared with Wall Street estimates.

In other words, Wall Street has been getting high on their own supply -- with the Dow surging to a record high this morning just because Larry Kudlow said a thing -- while manufacturing is already in recession and Americans cut back on spending.

Data released by the Commerce Department this morning showed that American consumers are spending less on clothes and electronics while the manufacturing recession would have continued even if the United Autoworkers Union had not gone on strike.

Sales at electronics and appliance stores fell 0.4% last month and receipts at clothing stores declined 1.0%. Spending at furniture stores fell 0.9%, the largest decline since December 2018. Receipts at building material stores dropped 0.5%.

Purchases of these items were likely hurt by the broadening in October of tariffs on imported Chinese goods to include a range of consumer goods.

Americans also cut back on spending at restaurants and bars, with sales falling 0.3%, the most in nearly a year. Spending at hobby, musical instrument and book stores dropped 0.8%.

If economic growth really does fall to 0.3 or 0.5 percent, or even anywhere below 1 percent, that means the economy barely moved at all and it brings us very close to negative territory.

I don't think there should be any doubt that Trump imposing another round of tariffs on about $155 billion in Chinese goods on December 15th would push the economy over the edge. Another round of tariffs would hit the only remaining goods that haven't been taxed already and would devastate consumer spending and retail. Strong consumer spending is the only thing keeping the economy afloat.

Economic growth for the entire year is still likely to weigh in around 1.5 percent or better, but there's not currently a lot of reason to think the first quarters of 2020 will look significantly different than the fourth quarter of 2019. No one should count on Trump's "greatest and biggest deal ever" saving them.