During Donald Trump’s time in office, the American economy has been booming.
There are seven million job openings, wages are on the rise, and GDP has grown by 3%.
However, for the first time since Trump’s inauguration, the economy is showing signs of slowing.
The U.S. business conditions gauge put together by Morgan Stanley showed the largest decline since 2008.
That isn’t good news, considering that 2008 saw the beginning of the “Great Recession.”
Economists for Morgan Stanley said that “indicators from services to manufacturing and hiring all cooled, dragging the headline index to 13, far below the 33 threshold consistent with positive real economic growth. The decline shows a sharp deterioration in sentiment this month that was broad-based across sectors. The MSCBI Manufacturing Index fell dramatically to zero, a decline that was likely exaggerated by the recent turn lower in oil prices while marking the lowest level for the sub-index on record.”
Bloomberg reported that “The University of Michigan’s preliminary sentiment index fell to 97.9 from 100 in May…the gauge of current conditions increased to 112.5 and the expectations index dropped to 88.6.”
Fears of an economic downturn have fueled speculation that the Federal Reserve will cut interest rates in July to prevent the economy from slowing down.
CNBC reported that Fed Vice Chair Richard Clarida said, “We will put in policies that need to be in place to keep the economy, which is in a very good place right now, and it’s our job to keep it there.”
The Fed uses interest rate cuts to help spur investment and spending in the economy. During times of economic hardship, the Fed uses the cuts as a tool to try and prevent further economic decline.
The fact that the Fed is looking at cutting rates in the near future is concerning. However, this doesn’t mean that the economy is no longer growing. The issue is to what degree is it growing.
Economists and financial markets are jittery given the inversion of the yield-curve—a chart that shows the yields of bonds at different times of maturity—which is seen by some as a predictor of a coming recession.
The most-watched indicator is the spread between the two-year and ten-year Treasury Bonds. In normal economic times, the ten-year treasury has a higher yield than the two -year treasury bond, because investors demand a higher interest rate to compensate for the longer duration. When the yield curve is inverted, the two-year rate is higher, which shows that investors are concerned about the prospects of the economy in the short term, and demand to be compensated for the risk.
Time will tell if these latest economic readings are signaling something bigger, or if they are just part of the business cycle. At this point, it may be too soon to tell.
But, if the economy takes a turn for the worse, it could spell disaster for President Trump’s reelection prospects.
Hopefully, for all our sakes, this won’t be the case.