This demand has helped U.S. manufacturers. Bloomberg reported that “the Fed’s index of US industrial production rose in September to the highest level in nearly five years, led by strength in the mining and manufacturing sectors.”
The Atlanta Fed’s GDPNow forecast was boosted to show the economy grew an annualized 5.4% in the third quarter, which would be the strongest since the end of 2021, according to Bloomberg. The word “recession” did not appear once in the story.
a soft landing
But on Oct. 2, Bloomberg published a story headlined, “Why a US Recession Is Still Likely—and Coming Soon.” The story did mention that positive signs in the economy had bolstered confidence at the Federal Reserve that the U.S. economy would have a soft landing as it neared the Fed’s target inflation rate of 2% and that the world’s biggest economy will avoid a recession. Here is the definition of a “soft landing” from the Investopedia website:
A soft landing is the goal of a central bank when it seeks to raise interest rates just enough to stop an economy from overheating and experiencing high inflation, without causing a severe downturn.
The determination of whether the U.S. has entered a recession is made by the private, nonprofit, nonpartisan National Bureau of Economic Research. Such determinations typically are not made until several months after a recession actually begins.
Bloomberg cited a number of factors for forecasting that there is a better-than-even chance that the NBER will declare that a U.S. recession began in the closing months of 2023. It predicted that these factors could shave a percentage point off GDP growth in the fourth quarter. Among the factors cited by Bloomberg are the United Auto Workers strike, the resumption of student loan repayments, and a potential government shutdown. Other negative influences include higher interest rates and a spike in oil prices.
What Bloomberg failed to do is directly link the factors threatening a recession with Republican policies. It was the GOP that blocked Biden’s efforts to provide student debt relief. Bloomberg estimated that each week of a federal government shutdown would take about 0.2 percentage points off annualized GDP growth, most of which would be recouped once the government reopens.
On the plus side, Bloomberg did cite “Bidenomics”—the president’s industrial policy that includes subsidies to the electric vehicle and semi conductor industries—for sparking higher business investment and helping keep the economy growing. So a quick end to the auto strike and avoiding a government shutdown could impact whether or not there is a recession and how severe a downturn there would be.
Krugman, in his Tuesday column titled “Soft Landing, Here We Come?”, was much more optimistic than Bloomberg, arguing that “the case for a soft landing … keeps getting stronger.” He wrote:
The most important reason for optimism is that an ever-widening range of indicators suggest that the conventional wisdom—that we needed a recession to bring inflation under control—was wrong. Instead, we seem close to returning to the Federal Reserve’s inflation target without paying much of a price at all.
He added that data suggest that underlying inflation is already most of the way back to the Fed’s target of 2%. “The war on inflation looks almost over, and we won,” he wrote. But Republicans continue to claim that Biden is responsible for runaway inflation.
Krugman said there still remains a question of whether we’ll get a recession anyway. “The big reason for concern,” he wrote, is that the interest rates that matter most for the real economy—for example home mortgage rates—have been soaring ever since the Fed began hiking its interest rate to reduce inflation. But he said with some certainty that a recession, if it happens, “probably won’t be either deep or long. For the economic news this year has been remarkably good, although many people refuse to believe it.”
Biden don’t get no respect
Comedian Rodney Dangerfield used the catchphrase “I don’t get no respect” in his standup, and polls show that Biden just doesn’t get the respect he deserves for his handling of the economy. A Bloomberg News/Morning Consult poll released Thursday showed GOP frontrunner Donald Trump leading Biden 47% to 43% among voters in seven key swing states: Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania, and Wisconsin. But the results were more striking in the response to a question on who voters would trust more on handling the economy going forward: Trump led Biden by a margin of 49% to 35%.
Voters don’t have a clue as to what an unmitigated disaster Trump’s economic policies would be should he win a second term. MSNBC opinion writer Hayes Brown wrote that Trump has proposed cutting corporate and individual taxes even further than he did in the Tax Cuts and Jobs Act of 2017 and imposing a massive 10% tariff on all goods imported into the U.S. Brown said the only word he could find to describe Trump’s proposals is “Yikes.”
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Team Biden needs to develop a more effective messaging campaign to convince Americans of “the strength of his economic stewardship” and how his economic policies are helping people, The New York Times wrote last month. “I’ve never seen this big of a disconnect between how the economy is actually doing and key polling results about what people think is going on,” Heidi Shierholz, president of the Economic Policy Institute, a left-leaning think tank in Washington, told the Times.
In a column published Thursday in The Wall Street Journal, Princeton professor of economics and public affairs Alan S. Blinder described this disconnect, writing:
Why does President Biden’s economic performance get such bad marks when unemployment is near record lows, net jobs are still being created at a breakneck pace, and inflation has fallen notably?
Although the Biden administration can’t crow about it, for fear of seeming out of touch, the economy is doing remarkably well. Consumer price index inflation over 12 months, which peaked around 9% in June 2022, has lately been running around 3.5%. The unemployment rate, which was 6.3% when Mr. Biden took office, has now been 4% or lower for 22 consecutive months. Job creation is still running well above the rate needed to absorb labor force growth. Consumers continue to spend like mad.
Yet the public is down in the mouth about the economy—and they blame Mr. Biden. ... The question is: Why is this a time for blame rather than credit?
Blinder cited several reasons for this disconnect: lags in people’s perception on the state of the economy, the general feeling of grumpiness among Americans about the state of their country, and the huge inequalities that leave millions of people struggling. He also pointed out that many people hold the unrealistic expectation that prices for many items can fall back to where they used to be. But instead, he said reducing the inflation rate means prices will “still be rising, albeit slowly.” The reality, Blinder said, is that some prices in a modern economy—such as for gasoline and food—do go up and down a lot, but most prices only go up.
The only way that prices might fall a lot is during in a “truly sick economy” like the Great Depression, which triggered deflation, Blinder explained. He said the problem is that a lot of the public does not realize how “bad things would have to get to produce deflation.”
“They long for the lower prices they remember. But they don’t think about the severe recession, or even depression, that might be necessary to get back there.”
Unlike Federal Reserve governors, Biden will be on the ballot in 2024 and there’s only a limited amount he can do to reduce prices. “A deep recession might do the trick, but nobody wants that,” Binder concluded.
Are you sure about that, professor? Trump’s economic policies could very well trigger that deep recession, and Biden must expose that danger as he campaigns for reelection.
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