A frame is raised on a house under construction near Roseville, Calif. (AP Photo/Rich Pedroncelli)
The bank is projecting economic growth will slow “significantly” in the second half of 2019 as the twin jolts from tax cuts and a bump in federal spending fade while the Fed continues raising interest rates. More precisely, it expects this year’s heady pace of 3 percent-plus growth will sink to 1.75 percent by the end of next year.
The picture Goldman paints isn’t entirely gloomy. Indeed, the bank expects the Fed will keep hiking interest rates in part to keep a humming expansion from overheating.. The report, which Goldman sent to clients on Sunday but isn't publicly available, predicts the unemployment rate will continue to drop, falling to 3 percent by 2020, while wage growth edges up as high as 3.5 percent. And it sees no disaster lurking: “The expansion is on course to become the longest in US history next year, and even in subsequent years recession is not our base case.”
That places Goldman on the sunnier side of the Wall Street consensus: More than a third of top forecasters believe the U.S. economy will enter a recession in 2020; and a new Reuters poll of economists found they think the probability of a recession in the next two years is rising, to a median 35 percent. (The Fed projects GDP will slow to 2.5 percent next year, a 2 percent in 2020, before slipping to 1.8 percent in the longer run.)
Such a slowdown could have dramatic political repercussions for the Trump administration and the broader Republican Party, which remain invested in a roaring economy offering an effective argument heading into the 2020 election. That proved a losing bet in the midterms, in which House Democrats scored their biggest midterm pickups since the post-Watergate election of 1974. More troubling for the GOP, the Democrats’ performance was arguably the best in history for an out-of-power party amid such strong economic conditions. If the economy hits a skid, Republican losses in the next election could get even worse.
Workers assemble Ford trucks at a plant in Louisville, Ky. (AP Photo/Timothy D. Easley)
And there are plenty of other risks that could menace the expansion — including a misstep by monetary policymakers, as Scott Minerd of Guggenheim Partners argues:
Every #recession since 1970 was caused by the #Fed tightening monetary policy too far in response to a decline in the unemployment rate to a level below full employment. I doubt the Fed will negotiate a soft landing this time either. https://t.co/z2ZolVgiDR pic.twitter.com/dROuLvJ7iq— Scott Minerd (@ScottMinerd) November 19, 2018
I think Krugman gets this right (and like the term). If there were to be a recession in the next couple of years, it would probably be a smorgasbord recession. https://t.co/0kgnAhzlVb pic.twitter.com/wXjrZLWpdB— Neil Irwin (@Neil_Irwin) November 19, 2018
Programming note: We’re publishing an abbreviated version of the newsletter through Wednesday this week and then will be dark on Thursday and Friday in observance of Thanksgiving. We’ll be back to our normal offering and frequency starting Monday.
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People walk by the New York Stock Exchange in New York City. (Spencer Platt/Getty Images)
"Downbeat forecasts from former market leaders such as Apple Inc. and Facebook Inc. have raised questions over whether the past year’s gains can be justified. Adding to those worries, investors are already expecting a broader slowdown in corporate earnings growth as rising rates and a stronger dollar take a greater toll on profits... The Dow Jones Industrial Average ended the day down 395.78 points, or 1.6%, to 25017.44 after tumbling more than 500 points earlier. The S&P 500 fell 45.54 points, or 1.7%, to 2690.73 and the tech-heavy Nasdaq Composite lost 219.40 points, or 3%, to 7028.48."
$1 trillion gone. The FAANG stocks — Facebook, Amazon, Apple, Netflix and Google-parent Alphabet — have collectively seen nearly $1 trillion erased from their market cap since hitting their highs, CNBC notes. Futures are pointing to more turbulence today.
President Trump and Chinese President Xi Jinping. (AP Photo/Andrew Harnik)
"The official request for public comment, published in the Federal Register, asks whether a long list of AI tools should be subject to stricter export-control rules. The Trump administration’s potential targets include image-recognition software, ultrafast quantum computers, advanced computer chips, self-driving cars and robots. Companies that make those products and services, for instance, might have to obtain licenses before selling them to foreign governments or partnering with some researchers in certain countries."
— U.S. companies in no hurry to leave China. CNBC's Evelyn Chang: "U.S. companies aren't leaving China in a big way yet, despite escalating trade tensions between the two economic powerhouses, analysts said. 'A lot of companies are talking about making changes, but (are) not actively making changes,' said Chris Rogers, research analyst at Panjiva, a supply chain data company that's part of S&P Global Market Intelligence. 'Nobody's going to make any changes until they see how this summit goes between President Trump and President Xi," he said referring to their upcoming meeting at the G-20 summit in Buenos Aires, Argentina on Nov. 30 and Dec. 1."
China approves Disney purchase of Fox. NYT's Brooks Barnes: "Disney is still awaiting regulatory approval from a handful of countries, which a spokeswoman declined to identify. But none are as important as China — a crucial growth market for Disney, given its swelling middle class. Furthermore, analysts had worried that the Disney deal could become collateral damage in the trade war, as China was looking for ways to retaliate against the United States."
- “Ivanka Trump used a personal email account to send hundreds of emails about government business last year.” The Washington Post’s Carol Leonnig and Josh Dawsey.
- “Trump to give Mueller written answers by Thanksgiving.” Politico’s Eliana Johnson and Darren Samuelsohn.
- “White House discusses possible Trump visit to troops in Iraq or Afghanistan.” Josh Dawsey and Paul Sonne.
- “For Trump, the relationship with Saudi Arabia is all about money.” The Post’s Karen DeYoung.
Nissan Chairman Carlos Ghosn. (AP Photo/Kin Cheung)
A nail in globalization. Fortune president Alan Murray, in his morning note, calls Ghosn's demise another knock on the post-World War II order: "He in some ways represented its pinnacle—a Lebanese-born Brazilian who came to run three different global companies all at once: Renault in France, Nissan and Mitsubishi in Japan. When he first assumed the joint-CEO position, many thought he was a harbinger of a new, cross-cultural business future. But now he marks that future’s demise. With Ghosn gone, Japanese business has returned once again to its insular ways. And much of the world is heading in a similar direction."
— Cramer: Facebook stock would rise if it dumped Sandberg. CNBC: "Cramer was discussing a new report in The Wall Street Journal, which described Facebook Chairman and CEO Mark Zuckerberg as causing 'unprecedented turmoil' at the social network amid scrutiny over its Cambridge Analytica scandal and subsequent public disclosures... On CNBC Monday, Cramer said Facebook ‘is obviously’ in disarray. ‘Does anyone say it's humming?’ the ‘Mad Money’ host asked. ‘They can't get a hold of the narrative. It's bad.’”
— D.C. offered up to $1 billion for HQ2. The Post's Jonathan O'Connell: "The District offered Amazon.com up to $1 billion in tax incentives to open a second headquarters with 50,000 jobs in D.C., probably the largest subsidy ever offered by the city to a single employer but also far less than other jurisdictions agreed to provide to the tech giant. The package, released Monday by Mayor Muriel E. Bowser (D), offered a combination of discounts on property, sales and corporate franchise taxes over a 15-year period as outlined in a law aimed at luring tech jobs to the city. Bowser’s office estimated the package’s value at between $488 million and $1.053 billion, depending on the number of jobs Amazon would have created, how many were filled by District residents, how much office space the company occupied and other factors. (Amazon’s chief executive, Jeffrey P. Bezos, owns The Washington Post.)"
Rep. Seth Moulton (D-Mass.), is questioned by reporters about his opposition to House Minority Leader Nancy Pelosi (D-Calif.) becoming the speaker of the House when the Democrats take the majority next year. (AP Photo/J. Scott Applewhite)
"Their pledge to oppose Pelosi, delivered in a letter to Democratic colleagues, comes as the California congresswoman has marshaled a legion of supporters to make her case. She is courting members in one-on-one conversations while securing the backing of allies on and off Capitol Hill... The insurrection against Pelosi stands as the only official obstacle to unity in the top leadership ranks, after Rep. Diana DeGette (D-Colo.) on Monday withdrew her challenge for the No. 3 job held by Rep. James E. Clyburn (D-S.C.), and Pelosi endorsed her leadership team. But the renegades’ threat is considerable."
— SALT increase hurt Republicans. NYT's Ben Casselman: "Trump’s $1.5 trillion tax cut was supposed to be a big selling point for congressional Republicans in the midterm elections. Instead, it appears to have done more to hurt than help Republicans in high-tax districts across California, New Jersey, Virginia and other states.
"House Republicans suffered heavy Election Day losses in districts where large concentrations of taxpayers claim a popular tax break — the state and local tax deduction — which the law capped at $10,000 per household. The new limit resulted in an effective tax increase for high-earning residents of high-tax states who claim more than $10,000 per year in SALT.
"Democrats swept four Republican-held districts in Orange County, Calif., where at least 40 percent of taxpayers claim the SALT tax break, defeating a pair of Republican incumbents and winning seats vacated by Representatives Ed Royce and Darrell Issa. Those districts include longtime Republican strongholds, like Newport Beach, and rank among the country’s largest users of the state and local tax break."
Federal Reserve chairman Jerome Powell and Vice Chair Randal Quarles. (AP Photo/Cliff Owen)