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Is The U.S. Economy Slowing?

As you probably already know, the stock market has been having problems of late.

Let me add another thing you can worry about.

According to Refinitiv Thomson Reuters, 80.7 percent of the 140 companies that have recently reported quarterly results have beaten the estimates of Wall Street analysts. And only 10.7 percent have seen earnings miss expectations.

That is great news considering that historically only 64 percent exceed the estimates and 21 percent miss.

So why is that bad news? Because even under these wonderful conditions, the stock market isn’t doing well. And that bodes poorly for the market when corporate earnings get back to their historical norms.

Next year, corporate profits probably won’t be as impressive because 2019 earnings will be compared with the 2018 numbers, which have been aided by the reduction in corporate taxes.

Is the US economy slowing? And if it is, who is going to be blamed?

It is a week and a half until the midterm congressional elections, so it is not surprising that the fingers are being pointed in all directions — just in case voters decide that the economy really isn’t as good as it is being advertised.

On Friday, we will know how the economy did in the third quarter of this year. The Atlanta Federal Reserve thinks the nation’s gross domestic product grew at a 3.9 percent annual pace over the July through September period.

If that’s the case, the economy will add another good quarter to the 4.2 percent annual GDP growth in the second three months of 2018.

But here’s the catch. The economy has had a spurt like this before in recent years. And it has done so without the help of a massive tax cut that is adding to the nation’s deficit. In 2014, the second quarter grew 5.1 percent and the third quarter expanded 4.9 percent. Those quarters, however, were sandwiched by quarters of mediocre results. And the economy remained weak enough to stir up voter discontent. Could it happen again?

The folks at the Economic Cycle Research Institute, a private, non-partisan think tank that used to be close to the Fed, says a slowdown is already happening.

“The economy has been boosted by massive fiscal stimulus — plus an energy boom for the ages — steering it clear of recession risk,” says co-founder Lakshman Achuthan. “But it’s remarkable that it is already in a slowdown that not many see — certainly not the Fed.”

And a big drop in new home sales reported Wednesday is also making economists wary.

Fed Chairman Jerome Powell has continued raising interest rates because he believes the economy no longer needs the stimulus that low borrowing costs offer. That belief was driven home this week by a number of Fed governors who have publicly backed Powell’s stance.

But it is clear whom President Trump will blame if the economy slows measurably. He’s been criticizing Powell for a number of weeks, including a statement Tuesday complaining that President Obama got to work with zero interest rates and that the Fed isn’t giving Trump the same treatment. “I’m very unhappy,” the president said.

Powell, if he decides to go on the offensive, will likely blame Trump trade wars for slowing the economy. And he’ll point to any number of companies that have blamed higher tariffs — or expected higher tariffs — for their missing earnings forecasts.


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