During the Sept. 26 having a stronger economy, while Donald Trump characterized the ongoing recovery as the “worst revival” since the Great Depression., Hillary Clinton said the U.S. is on the “precipice” of
Who’s right (or at least less wrong)?
Before we try to answer that question, let’s note another factor affecting the economy: The candidates. Americans view this presidential campaign as the most negative in U.S. history, polls show, with potential voters describing both Clinton and Trump as risky choices. The country has faced tough electoral races before, of course, but the current ugliness seems to be casting an unusually noxious pall over the economy.
“[R]egardless of the outcome of the election, we think the economy is at risk of a soft patch in the coming months as a result of the uncertainty related to the election,” Bank of America Merrill Lynch analysts said in a research note, adding that businesses arebecause of the political climate.
Setting aside the electorate’s sour mood, however, recent signals do offer a picture of how the economy is faring as the presidential campaign enters the home stretch: not so hot.
The first half of 2016 was, to put it charitably, a total dud. Over the first two quarters, the economy grew at an average annual rate of only 1.1 percent, even weaker than the already soft post-recession average of around 2 percent.
Not to worry, most private forecasters said, predicting much stronger growth in the third quarter. Actually, worry. Many of the same prognosticators who expected economic activity to accelerate between July and September are now ratcheting those projections right back down.
For example, economists at the Federal Reserve Bank of Atlanta. As recently as August, they were estimating robust annualized growth of 3.6 percent for the third quarter, but on Friday they lowered their forecast for the period to a modest 2.4 percent, citing a decrease in consumer spending, slack exports and businesses restocking their shelves.
And the rest of the year? The New York Federal Reserve expects growth in the fourth quarter to dip well under 2 percent.
In another potentially worrying sign, consumer spending for August came in unexpectedly light. Of course, Americans could simply be keeping their powder dry for a blowout holiday season. But if that dip were to extend another month or two, the economy would be losing the main engine that has been keeping things chugging along.
Certainly, that seems to be the Federal Reserve’s view, which recently lowered its median forecast for inflation-adjusted GDP growth to 1.8 percent for 2016, while cutting its longer-run growth forecast from 2 percent to 1.8 percent.
Beyond the toxic presidential campaign and usual partisan hostilities in Washington, several factors are combining to weigh on economic growth.
First, demand remains muted by historical standards, and a recent decline in the pace of car sales suggests consumer spending may have peaked in the current business cycle.
Second, U.S. companies are in no mood to spend, either. Even excluding the beaten-down energy sector, business spending this year has risen only 2.1 percent, according to Deutsche Bank.
Third, and relatedly, data from FactSet show that corporate profits are in line to decline for a sixth straight quarter -- the first time earnings have retreated for such a long stretch since the research firm started tracking profits in 2008.
Not all the news is bad. Unemployment, now at 4.9 percent, is low. Consumer confidence is at its highest level since June, the University of Michigan’s sentiment index shows. Housing prices are continuing to recover. Encouragingly, Census figures show that many -- but not all -- Americans saw a sizable jump in income last year, while poverty fell.
Meanwhile, broad measures of the economy, such as GDP, often do as much to obscure what life is really like in the trenches for Americans as to illuminate it.
But let’s call this year’s economic performance what it is: disappointing. If the U.S. economy, which is on pace for its weakest rate of expansion in three years, is on the cusp of anything, it’s of growing weaker -- not stronger.