That sound you hear is the US economy sputtering. Or the air coming out of the stock market. Actually, it’s both.
Fresh evidence emerged this week that tepid global growth is dragging down trade and manufacturing here and abroad, while a private-sector jobs report showed that the domestic job market is cooling off.
Throw in “confidence-sapping” uncertainty around the tariff war with China and the Democrats’ presidential impeachment inquiry, said Hans Olsen, the chief investment officer at Fiduciary Trust in Boston, and we are seeing the “concussive effect of a trifecta of woe.”
Stocks fell sharply Wednesday, with the Dow Jones industrial average losing almost 500 points, as investors fled to safe-haven assets such as US government bonds and gold. The sell-off followed big drops in Asia and Europe. The Dow and Standard & Poor’s 500 indexes have shed about 3 percent in the past two days.
“Investors are probably crying uncle,” Olsen said.
They may cry real tears come Friday, when the Labor Department is set to release payroll and unemployment data for September. The consensus is that the jobless rate remained unchanged last month at 3.7 percent, while employers added about 148,000 nonfarm jobs, according to Bloomberg.
If reality falls short of the forecasts, stocks could be in for more trouble.
Investors have spent the past several months fretting about how long the US economic expansion, in its record-setting 11th year, can last.
The list of concerns has become a kind of Wall Street rosary: China’s slowing economy, the impact of the US-China trade fight, Brexit, the direction of interest rates, the durability of corporate earnings.
Still, most private forecasters — and the Federal Reserve — expect growth of about 2 percent this year, citing the strength of consumer spending, which accounts for about 70 percent of economic output.
The outlook for next year is less certain, with a little more than a third of economists predicting a recession, according to a survey that was released in August by the National Association of Business Economists.
The Fed, after trying to get interest rates back to normal (that is, pre-financial crisis) levels in 2018, has tried to keep the economy moving forward this year by easing credit. It has cut the benchmark federal funds rate by half a percentage point, to the range of 1.75 percent to 2 percent. Odds are good that it will continue to ease after its next meeting, on Oct. 29-30.
Central bankers said after their September meeting that they will “continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.”
That incoming information has been mostly gloomy.
On Tuesday, the Institute for Supply Management said that its widely watched manufacturing index declined to 47.8 in September, the lowest since the start of the recovery in June 2009 and the second consecutive monthly decline.
Any figure below 50 signals an economic contraction.
Separate manufacturing surveys in Europe and Asia also showed declines in September, while the World Trade Organization cut its forecast for 2019 growth in global trade volume to 1.2 percent, from a previous estimate of 2.6 percent.
The WTO cited slowing growth in big countries, increasing tariffs, and turmoil created by Britain’s planned exit from the European Union (with or without a deal).
A report on Wednesday from ADP, the big payroll company, showed an increase of 135,000 private-sector jobs last month, missing some forecasts.
None of this really surprises Robert Shapiro, a senior fellow at the Georgetown Center for Business and Public Policy and the chairman of Sonecon, a Washington, D.C., economic advisory firm.
“We are in the final stage of the business cycle, and have been for the past year. All business cycles end, and for good reasons: Opportunities for productive investment shrink, the availability of skilled workers shrinks, and pent-up demand dries up,” said Shapiro, who was undersecretary for economic affairs at the Commerce Department from 1997 to 2001.
Investors, who’ve been on a bumpy ride since stocks peaked in July, didn’t take the news well on Wednesday.
The Dow closed down 494 points, or 1.9 percent, at 26,079, but it remains up 11.8 percent for the year. The S&P 500 lost 1.8 percent, trimming its year-to-date increase to 15.2 percent.
The yield on the US 10-year Treasury note slipped to 1.598 percent, as the price rose, and gold gained 1.1 percent to settle at $1,497.
Olsen, of Fiduciary Trust, isn’t forecasting a recession this year or next. But growth could slow significantly. “It may not be a recession,” he said, “but it feels recessionary.”
Our economic engine is sputtering. When we run out of gas remains to be seen.