Global Growth to Hit Decade Low Amid U.S.-China Trade War The global economy is set to grow at the slowest pace since the financial crisis, with business investment and trade hampered by an escalating dispute between the U.S. and China, the OECD said.
The Paris-based research body said it now expects world output of goods and services to increase by 2.9% this year, the smallest annual rise since 2009 when the global economy was pushed into a recession by the near-collapse of the financial system.
It expects growth to remain low in 2020 and possibly beyond if the trade conflict between the U.S. and China spills over into other aspects of their economic relationship. The OECD noted that the affiliates of U.S. companies operating in China have sales that exceed total U.S. exports to China. (…)
Another worry for Ms. Boone is that trade disputes could proliferate, with Japan and South Korea already in conflict and U.S. President Donald Trump due to decide in November whether to press ahead with tariffs on automobile imports that would hit the European Union.
The OECD cut its growth forecasts for the U.S. and a number of developing economies. It now expects U.S. gross domestic product to increase by 2.4% this year and 2% the next year, having forecast growth of 2.8% and 2.3% in May. It made an even larger cut to its 2019 growth projections for Mexico, Argentina, Brazil, India, Russia, Saudi Arabia and South Africa. (…)
The research body also warned that should the U.K. leave the European Union without a new trade deal, economic output could be 2% lower than would otherwise be the case in the U.K., and 0.5% lower in the EU. That would leave the U.K. in recession, and the EU on the brink. (…)
Fed Trims Rates as Officials Differ Over More Cuts Central bankers divided over Wednesday’s decision and the outlook for further reductions.
(…) “There will come a time, I suspect, when we think we’ve done enough. But there may also come a time when the economy worsens and we would then have to cut more aggressively,” said Mr. Powell at a news conference Wednesday. “We don’t know.” (…)
Seven of 10 Fed officials voted in favor of lowering the benchmark federal-funds rate to a range between 1.75% and 2%, with two reserve bank presidents preferring to hold rates steady and one favoring a larger, half-point cut. (…)
“It’s an unusual situation,” Mr. Powell said. “Our eyes are open. We’re watching the situation. We’ve cut rates twice.” (…)
Seven of 17 officials penciled in one more rate cut this year. The other 10 were split evenly between those who thought the new level of rates, after Wednesday’s cut, would be appropriate through the rest of 2019 and those who thought rates shouldn’t have been cut. (…)
The FOMC now includes exports on its list of uncertainties but keeps faith on the consumer whose spending “has been rising at a strong pace”. Not a word on inflation! Negative rates?
I do not think we’d be looking at using negative rates; I just don’t think those will be at the top of our list.” Instead, he suggested: “If we were to find ourselves at some future date again at the effective lower bound—again, not something we are expecting—then I think we would look at using large scale asset purchases and forward guidance.
Trump on Powell on July 30: ““No ‘guts,’ no sense, no vision! A terrible communicator!” But Powell has the guts to admit that they don’t know, simply because they have no vision on what’s going to happen on trade. They are not alone:
American CFOs did not have a good summer.
Economic uncertainty is a top CFO concern, pushing difficulty hiring and retaining qualified employees to the second biggest concern. Hiring concerns had topped the list for several years. More than half (53%) of US CFOs believe that the US will be in recession by the 3rd quarter of 2020 and 67% believe that a recession will have begun by the end of 2020.
Whether they are right or wrong matters less than the fact the 53% of CFOs expecting a recession must be preparing for one: cut costs, trim employment, capex, R&D, reduce debt and raise cash.
Notice how the gap between growth in revenue and wages and salaries has narrowed. The squeeze on margins is even more dramatic when considering the median revenue growth forecast from +7.5% a year ago to +4.0% in June t0 3.0% in September.
- And their bosses are getting worried as well:
Source: Business Roundtable via The Daily Shot
Blackstone CEO Steve Schwarzman Says Recession Is ‘Unlikely Now’
(…) Despite signs of a slowing U.S. economy and a tug of war with China on trade issues, Schwarzman says a strong labor market, low interest rates and healthy consumer spending are propping things up.
“Consumer buying is going up,” Schwarzman explains. “If they continue spending that money, we’ll have a longer run. But there’s no doubt that 4 percent type growth, 3 percent growth would be very challenged now.” (…)
What worries Schwarzman the most right now is the China trade conflict. He says if the U.S. and China cannot resolve their differences, he fears they will drag down growth for the world economy. From years of doing business in China, Schwarzman is plugged in to what government officials and business leaders there are thinking. He gives a glimpse into what to expect from the negotiations between President Trump and Chinese leaders in October.
“Their perspective is ‘we want to open but we’d like to do it on our schedule, not yours,’” he says. (…)
Oil Spikes, Auto Strikes Join List of Supply Shocks
- The current dispute has all the hallmarks of a drawn-out battle. GM has more interest in keeping its fixed expenses under control than in containing one time strike costs. It will want to avoid losing market share to its competitors, but a recent buildup of inventories gives it some protection: It currently has 77 days’ worth of supply, compared with an industry average of 61. (WSJ)
Brazil Central Bank Cuts Benchmark Rate to Record Low
Bank of Japan Hints at Possible Action in October The Bank of Japan left policy unchanged but hinted at possible action at its next meeting, saying it believes momentum toward achieving its inflation target may be falling short.
U.S. Housing Starts Rose Significantly in August Home building in the U.S. increased in August to the highest level since June 2007, a positive note for the housing industry in a year marked by lagging home sales and sluggish single-family construction.
Housing starts, a measure of new-home construction, climbed 12.3% in August from the prior month to a seasonally adjusted annual rate of 1.364 million. (…)
In fact, it was strength in the multifamily sector that helped drive the steep August climb in building. Construction of buildings with two or more units rose 32.8% in August from a month earlier. Single-family home construction, meanwhile, rose just 4.4%
Residential building permits, which can signal how much construction is in the pipeline, rose 7.7% from July to an annual pace of 1.419 million. (…)
- Mortgage applications for house purchase have been very strong for this time of the year. (The Daily Shot)
