The American economy has expanded steadily since the 2007-08 depths of the Great Recession under George W. Bush. The upward climb began under Obama, and continued through his administration, allowing Trump the luxury of inheriting a strong economy in 2017. With this inertia, the trend continued for three years under Trump, allowing him to claim credit.

With over a decade of economic expansion, critics are suggesting that maybe the expansion has run its course. Has it?

Economists can’t predict the future. And neither can anyone else. But we can take a look at what’s happening now.

The obvious good news is strong employment. The Bureau of Labor Statistics (BLS) reports low September unemployment at 3.5%. While campaigning, Trump dismissed BLS numbers as phony, grossly underestimating unemployment. He now has no quibble with BLS statistics, touting these good numbers.

Non-farm payroll job growth for September was 136,000, credible but below the estimated 145,000, and below the 2018 monthly average of 223,000.

Inflation remains below the Fed’s target of 2%.

Economic growth remains credible, at 2% for the second quarter, far below Trump’s promised continuous growth at 4% and above. Economists’ criticism of Trump is not because his promised 4% hasn’t been achieved; it’s because of wild, unrealistic promises that should never have been made. 

Personal consumption expenditures that account for about 70% of the economy remain strong, increasing 4.6% for second quarter.

Although financial markets bear little resemblance to the welfare of typical citizens, they remain close to all-time highs.

So why is there such worry about possible recession? Economic expansions don’t go on forever. But neither do they die of old age; they die for reasons. And there are plenty of reasons for concern.

Continuing weakness of this economy, and a threat to long term stability, is the ever-increasing inequality of income and wealth. This trend did not begin with Trump; it has been developing for decades. Even continued economic growth will not solve this economic cancer that is eating away at economic stability. It will take more than modest economic growth and avoidance of recession to resolve this systemic weakness. That’s a longer run problem, but below are some valid reasons for worry, and harbingers of possible recession.

In spite of low unemployment, wage growth is anemic, having even declined in September.

The Institute for Supply Management (ISM) issues monthly reports indicating economic trends. Its September reports indicate trouble for manufacturing. ISM’s Manufacturing Report on Business indicated a decrease in its Production Index, Employment index, and Supplier Deliveries Index. Its September New Export Orders Index registered a 2.3 percentage decrease from an already low August reading.

ISM’s September Non-Manufacturing Report on Business registered a 3.8 percentage decrease below its August reading.

While consumer spending remains strong, it cannot be depended on to continue. The Federal Reserve Bank of New York reports that second quarter total household debt increased by $192 billion to $13.86 trillion, the 20th consecutive quarter of increases. Mortgage balances, the largest component of household debt, rose by $162 billion in second quarter to $9.4 trillion. This surpassed the high of $9.3 trillion in third quarter of the 2008 Bush Recession. 

Credit card balances increased by $20 billion to $848 billion in second quarter. Credit card delinquencies increased from 5.04% to 5.17% during that period. If the economy softens ever so slightly, high consumer debt spells trouble.

Vehicle sales were down by 2.4% during the first half of 2019 and are on track to reach their lowest level since 2014. Nevertheless, auto debt for second quarter 2019 increased by $59 billion over 2018 and by $17 billion over the previous quarter. Auto loans used to be for a period of three to five years; many auto loans today are for seven years. In addition to the additional interest on such loans, with depreciation, asset values will surely be less than the outstanding balances owed on these loans.

Another phenomenon causing some concern is the “inverted yield curve,” once familiar only to economists and financial professionals, but now familiar to anyone following this stuff. Typically, lenders demand higher interest rates for long term loans than for short term loans. Of late, interest rates on long term debt instruments are either below, or very close, to rates for short term debt instruments of similar quality. This indicates business pessimism and soft demand for longer term loans.

Further cause for worry is softness in European economies, specifically Germany, Italy, and the UK, the latter associated with Brexit, UK’s convoluted exit from the European Union. Some European economies are experiencing worries about deflation. In contrast, reduced value of the British pound associated with Brexit is more likely to create inflationary pressures for the UK.

There is softness in the world’s second largest economy, China, which brings us to the US-China trade war. American tariffs imposed on foreign goods are reflected in higher prices paid for those imports, and for these American-produced goods due to reduced total supply. Defenders of these tariffs assert that price increases will be modest and temporary; Americans can bear them and they will not be inflationary. 

Nevertheless, there are other trade war costs, such as the effect of retaliatory foreign tariffs on selected American exports. Costs include interruptions in the supply chain of materials needed for manufacturing, and the possible, very likely, long-run losses of American export markets. Declining business investment results from “uncertainty.”

Early on, Trump insisted that “Trade wars are easy to win.” That’s pure eyewash. The best realistic outcome is mutual benefit from a win/win situation. That requires patience, not bluster like Trump’s “big deal or no deal,” — that reflects sheer ignorance. When asked the time, Americans look at their watch. Chinese look at their calendar. Regardless of their softening economy, China is dealing from strength. 

So will there be a recession? 

Maybe not a full-fledged recession, but very possibly a much softer economy than that on which the administration is depending.

— John Waelti of Monroe, a retired professor of economics, can be reached at jjwaelti1@tds.net. His column appears Saturdays in the Monroe Times.