We upload a slide deck we used for a Government Finance Officers Association webinar last Thursday, February 28, 2019 with a few updates:
- Market skepticism seems to have overtaken the administration’s pronouncements about how well discussions with China are going. Risk off, at least as of March 4, 2019 – seems to indicate a desire for details. This is healthy if indeed it reflects desire for evidence over tweets.
- We highlight financial market–based factors that many people are watching to learn when recession might unfold. On the other hand, real economy factors such as new unemployment claims, ISM manufacturing new orders, single family housing permits. We credit Jeremy Nalewaik and team at Morgan Stanley for this analysis, showing that financial indicators alone point to 37% probability of recession this year but non-financial indicators show only 6% probability (overall 10% probability). These findings are consistent with divergence between financial markets, which have been increasingly volatile, and the rest of the economy, which continues to see steady recovery, job growth and green shoots for wage growth.
- Takeaway: it is important to recognize all economic factors – not just financial ones…
- That said, we also note that the last Federal Reserve Beige Book mentioned tariffs 39 times. Politico’s Morning Money today cited a recent discussion paper (paywall for the full paper) from the London based, non-partisan Centre for Economic Policy that stated:
- “…we find that the full incidence of the tariff falls on domestic consumers, with a reduction in U.S. real income of $1.4 billion per month by the end of 2018.”
- We also suggest listening to the Petersen Institute for International Economics podcast about soybeans and the trade war fallout (Trade Talks Episode 73)
- Takeaway: it is important to understand the geographic impact of tariffs and ultimate tax base losses…
