USA: Moderate GDP-growth and accommodative monetary policy

The projected slowdown of GDP-growth in 2019 (+2,6%; 2nd quarter: +0,2% Q/Q) would be a side effect of the trade war, a key component of Trump's economic policies. The recent introduction of non-tariff measures in the technology sector (Entities List) added a new dimension to the trade dispute. Economic growth will be more reliant on domestic economic activity, with even less support from external demand.

Even if the consumers’ sentiment surprisingly deteriorated by 6,3 reaching 92,1 points in August, employment growth, low unemployment rate (3,6%), large job availability and rising wages support the outlook for consumers’ spending. This will partly sustain the economy in the second half of the year.  

President Trump's tax cuts provoked an increase of stock buybacks rather than the jobs creation. Lots of people work part-time and most of the jobs’ growth is in low-paying retail and food service industries. Structural unemployment has increased.

Investment and business spending have weakened and remained low in the past months. The ISM Manufacturing Purchasing Managers Index (PMI) has been deteriorating even if still above contraction values (July: 51,2), which suggests a weaker business investment outlook in 2019 compared to 2018, particularly in capital equipment.

Analysts are talking about a possible recession warning signal coming from the inversion between yields on U.S. two-year and 10-year notes for the first time since 2007. For the first time in 11 years, the central bank lowered the current fed funds rate by 25 basis points to 2.25% in July and it will stop reducing its holdings in Treasuries acquired during quantitative easing, which ended in 2014. A core inflation rate (1,6%) below the Fed 2%-target inflation rate paves the way for cut rates, probably two times in the second semester.

September 2019