Weekly Economic Report
A global manufacturing recession – like in 2015-16 – is well underway, but we must admit we are more optimistic about the situation than we would have anticipated a year ago. When the trade war escalated late last September, we expected that it would: hit the US with only a glancing blow, slowing US growth below trend for two quarters in mid2019; initially slow China more significantly, but be fully offset by strong domestic stimulus leading to a China led global recovery; be exported to commodities producers via lower prices and to Emerging Markets via risk; and land hardest on Germany, Japan, and Northern Italy, the world’s rustbelt and largest manufacturers of capital goods for export to Asia. We had anticipated a year ago that the tax cuts would be a sugar high that wore off far earlier in 2019 than the consensus expected. We believed the trade war would grind to a halt with 25% tariffs on $50 billion and another 10% on $200 billion, the position ultimately agreed to at the November G7. We had expected the Federal Reserve to tighten in late 2018 and early 2019 – even though we thought it was the wrong policy move. Due to all of this, we expected the deepest sell off in the equity markets so far this cycle, which came about by Christmas Eve. Thus, we were feeling pretty good through March – when the President unexpectedly ramped up the trade war again.