Increasing Recession Fears in Middle-class Families
According to two independent surveys performed by CUNA Mutual Group and Allianz Life, middle class Americans are not as optimistic about their economic prospects as they were six months ago.
Most of the survey respondents downgraded their chances of achieving the American dream while almost 50% (up from 46% in the first quarter and 44% 12 months ago) were more concerned about a possible upcoming recession. They believe that a recession is due because America has enjoyed its longest economic expansion in history.
The poll was carried out in May on adults with annual incomes between $35,000 and $100,000. The concern was higher among parents than among childless adults. Parents also showed more interest in making changes (such as cutting spending) in order to maintain their financial stability.
Expectations of a recession also exist among economic watchers even though economic indicators point to growth.
Trump is Very Keen on Tariffs and May Blow Up Trade Talks
Reliable sources say the Trump administration is very keen on tariffs and may soon place additional ones on Chinese goods as the trade war continues.
In May, the administration placed 25% tariffs on $200 billion worth of Chinese goods and threatened duties on additional goods worth $325 billion. This covers all Chinese goods. The tariffs have been hurting China and last week it reported that its economy grew by only 6.2% in the second quarter, its lowest growth rate in 27 years.
In their meeting held in June, Trump agreed to delay the duties if China buys more agricultural products but he is already becoming impatient. The Chinese have to purchase American agricultural goods as agreed otherwise their own goods will bear additional tariffs. The increased purchases will help American farmers and reduce the U.S. trade deficit with China.
Jobless Claims on the Rise in Most States in the U.S.
The number of applications for unemployment benefits rose to 216,000 in the week ending July 13th, a moderate increase in a still strong labor market within a slowing economy. The four-week moving average dropped by 250 to 218,750 in the previous week.
There are concerns that job growth could be hindered by the Trump administration’s tougher position on immigration. There are more concerns about a dimming of the economy outlook due to the bitter trade war between the U.S. and China. Layoffs by manufacturing and information technology firms in the northwest between May and early July have contributed to the worry about the unemployment rate. Generally manufacturing is struggling and that impacts on jobs.
Meanwhile the economy created 224,000 jobs in June which has kept the labor market strong. Strong job growth supports the economy which is slowing as the huge stimulus from tax cuts and increased government spending fades.
Economy Looking Good but Federal Reserve Plans to Cut Interest Rates
The Federal Reserve is still planning to cut interest rates by 0.25% at the end of July despite a strong economy.
Economic data has firmed up in the past few weeks: the job market looks healthy, this quarter’s growth promises to be positive, and consumers keep spending. Because of that, Jerome Powell, the chairman of the Federal Reserve, was expected to move away from the rate cut, but he is going ahead.
That is not surprising. The post-recession world economy has changed in many ways and the Federal Reserve has learned that applying old rules from the pre-2008 era to the current situation may be dangerous. Powell basically owned up in Paris recently that the Fed is facing inherent uncertainties about the economy, especially the effects on the domestic and global economies. He said,
“Pursuing our domestic mandates in this new world requires that we understand the anticipated effects of these interconnections and incorporate them into our policy decision making.”
U.S. Farmers Hit Hard by Trump’s Trade War, Says Agriculture Secretary
Sonny Perdue, the Agriculture Secretary, acknowledged at the end of June that farmers have been seriously affected by the President’s trade war with China. He hopes that by the end of the year the two nations will have reached a trade deal.
Perdue told CNN, “I think they are one of the casualties with trade disruption, yes. We knew going in that when you flew the penalty flag on China, the retaliation, if it came, would be against the farmer.”
Farmers are a key electorate that helped Donald Trump win the election in 2016 but are now among the worst casualties of the trade dispute. They are sitting on huge quantities of soybean because China stopped buying. China used to buy 60% of America’s soybean exports.
In May, President Trump announced a $16 billion aid package for farmers to offset their losses.
Furthermore, the closest ally to the US – Britain, is being watched closely. Whereas the president expressed strong confidence in Boris Johnson: the man who is taking aim at toppling the EU, many analysts have reservations as to Johnsons’ ability to achieve anything better than his predecessor Theresa May. The economic relationship between the US and UK is of such, that along with Trumps’ endorsement of Johnson, the matter receives high attention.