Suffice to say there are questions about any rosy outlook on the decelerating US economy.
Over the weekend, we spent quite a bit of time documenting the extent to which recent data is only “good” relative to consensus – i.e., not “good” in any absolute sense.
Importantly, we’re not in the business of downplaying decent data for the sake of it. Rather, the point bears repeating precisely because Donald Trump’s entire narrative now revolves around the economy, so if activity decelerates meaningfully, it’s hard to see what the president has left to lean on when making the pitch to voters next year, other than appeals to the same, old “us versus them” xenophobia that permeates everything he says and tweets (and maybe we shouldn’t discount that – after all, playing on Americans’ deep-seated fears and prejudices worked in 2016).
Read more: Economy Now More Important Than Ever For Trump As Impeachment Probe Goes Public
But irrespective of whether the president can successfully appeal to his base by stirring the proverbial cauldron, a flagging economy won’t help when it comes to his broader appeal among those who voted for him based on his presumed business acumen.
One person who’s keen on driving home the point about the decelerating US economy is SocGen’s Kit Juckes, whose daily missive is called “Bah! Humbug! It’s a very happy Monday”.
Apparently, Kit was in New York Friday for a conference, and Albert Edwards was with him.
“Americans are naturally upbeat people. Equity people are naturally upbeat too.”, Juckes writes, adding that “the mood was in line with that and the release of the labour market data did no harm at all.”
As a reminder, the jobs report came in well ahead of estimates and revisions added 95k to the previous two months.
Juckes notes that even Edwards “failed to dampen the mood”. In fact, Albert’s bullish call on bonds “more than offset his famous bearishness”.
Friday of course brought the third consecutive contraction-territory ISM print in the US. That crossed while Kit was in a panel discussion on the “macro outlook”.
Somebody asked him whether markets are too concerned with manufacturing given that it’s a small share of GDP.
“My response was that it nevertheless is important and correlates better with GDP growth than you might think”, Kit notes, adding that “a glib answer might be that my stomach is a bigger part of my body than my heart, but they both matter!”
Earlier this year, Albert had a colorful answer to the same question. To wit, from a July note:
The lurches down in manufacturing PMIs are dismissed as irrelevant prehistoric artifacts that should be ignored. If I had a Swiss franc for every time someone told me they were ignoring the manufacturing sector slowdown, just ahead of an economy collapsing into outright recession, I would be a rich man (and not just because of sterling’s dismal performance!)
Goldman might tell you a different story, though. “Directionally, Wall Street’s focus on manufacturing makes sense [as] the sector still accounts for 37% of the S&P 500 market cap”, the bank said over the summer, before imploring folks to at least consider that “the contribution from manufacturing to GDP volatility has fallen from 60% in the early 70s to 20% now”.
(Goldman)
And yet, as Juckes correctly points out, a quick look at the simplest of simple charts indicates that when ISM tanks, we should take notice.
Are there “false positives”? Sure. Do sub-50 manufacturing ISMs always portend recessions? Well, no. But this chart just “is what it is”, so to speak:
“The ISM data continue to suggest the US economy is slowing and the payroll data don’t refute that idea either”, Juckes said Monday. “We’re not at recessionary levels and the jury is out as to whether we get there, but with fiscal policy pretty much off the (US) table for now and trade policy heading for truce rather than longterm peace, it’s still monetary policy that is doing all the work to stabilize the global economy, US included”.
If there’s elegance in simplicity, that’s pretty elegant.
