Don’t wish for a recession! Even if you hate Trump

Rick Newman
Senior Columnist

If the U.S. economy enters a recession during the next 12 months, it could doom President Trump’s reelection odds. Some Democrats probably hope that happens.

But nobody should hope for a recession. For starters, voters are wise to economic doomsayers trying to convince them everything is terrible. That is showing up now in conflicting data. GDP growth and hiring are slowing, and the manufacturing sector is contracting. Plus, short-term interest rates are now higher than long-term rates, a reliable warning of recession. The media is breathlessly reporting it all.

Yet consumers remain confident, with a measure of the “present situation” at the highest level since 2000. Workers see little evidence of layoffs or other dangers in their own lives, which means shoppers are spending freely. Consumer spending represents about 70% of the U.S. economy, so it’s hard to have a recession if consumers are feeling good.

Consumer sentiment can change quickly if things go wrong. But politicians trying to bum them out won’t do the trick. Elizabeth Warren, for instance, constantly warns voters about a “crisis” of one form or another, and she’s been rising in polls among a crowded field of Democratic presidential candidates. But she’s still far behind front-runner Joe Biden, who’s sunnier. In Morning Consult polls, Warren takes just 15% of the Democratic vote, fueling concerns about her electability in a general election where she’d have to win pragmatic centrists wondering what crisis she’s talking about.

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There’s also nothing recession-wishers can do to actually effectuate a downturn. You can’t talk people into a bunker mentality, and no group of people can slow its spending habits enough to impact the gigantic US economy. It’s folly to think otherwise.

Finally, recessions are terrible and people suffer. Some dramatically. Safety-net programs help but don’t leave everybody whole. In recent YouGov polling, 43% of Americans said they’re prepared for a recession, while 44% said they’re not. And 38% say they haven’t fully recovered from the last recession, which ended 10 years ago.

Trump is vulnerable on the economy without a recession. He said he’d boost annual growth to at least 3% and possibly 4%, through tax cuts and deregulation. But the best he got last year was 2.9%, with GDP on track for about 2% growth this year.

The sharp cut in the corporate tax rate was supposed to trigger a business-spending boom that trickled down to workers. In 2017, the Trump White House said the average family would see a $4,000 income boost within 3 to 5 years. Nothing like that is happening. And now, business spending is falling, after a modest bump last year, as the following chart shows. There were two bigger bumps in business spending under President Obama.

Source: St. Louis Federal Reserve, Bureau of Economic Analysis

Prices for hundreds of consumer goods will rise this fall, thanks to Trump’s trade war with China. Trump still has time to pull a rabbit out of a hat and ink some kind of deal with China that allows him to pull back the tariffs. But as the election draws closer, Trump’s hand weakens and China’s gets stronger. Trump foolishly proclaimed, of course, that trade wars are “good, and easy to win,” setting himself up for mockery by political foes pointing to Trump’s tax hikes on ordinary shoppers. No recession required.

Trump’s Democratic opponents seem to worry that he has a hex on voters, backed by Vladimir Putin’s deft ability to manipulate elections from afar. But the biggest hex on voters may be Democrats unable to capitalize on Trump’s many failures. Then again, maybe they might.

All Markets Summit 2019

Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman