Trump’s policies are slowing the nation’s growth, say economists — and consumers

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By Martha C. White

As the world’s economic elite gather in Davos, Switzerland, for the World Economic Forum, recent data suggests that corporate titans as well as average Americans could be backtracking from the ebullience that characterized — and most likely helped drive — economic growth last year.

An annual PwC survey of more than 1,300 global CEOs found that the number who expect economic growth to decline leaped from just 5 percent last year to 29 percent this year. This drastic increase was led by the sentiment of North American chief executives, whose expectations for decline rose from 3 percent a year ago to 28 percent.

Consumer data from the University of Michigan released Friday also reflected a turn toward the negative. Measures of consumer sentiment, views on current economic conditions and economic expectations all turned negative on a month-to-month as well as a year-over-year basis. The index of consumer expectations recorded the sharpest decline with a 10 percent month-to-month decrease and a year-over-year drop nearly as large.

Justin Wolfers, a professor of public policy and economics at the University of Michigan, said the widening gap in Americans’ political leanings could be skewing “soft” data that measures attitudes rather than actual spending. “This is a relatively recent phenomenon,” he said, one that manifested itself with President Donald Trump’s election in 2016 and has largely persisted.

Historically, Wolfers said, economic survey respondents tended to leave politics out of their views about money and finances. In the era of Trump, that has changed. “Measures of sentiment have become incredibly polarized or politicized,” he said. “There’s been a massive disconnect between measures of sentiment and the economy.”

Recent data points indicating a dimming outlook might reveal more about how Americans will behave as voters rather than as consumers. “It could be driven by people getting off the Trump bandwagon,” Wolfers said.

Economists point out that businesses have considerably less to look forward to in the next two years of the Trump presidency than in its first two years, characterized by a massive corporate tax cut and regulatory rollbacks.

In its survey, PwC said factors including “international trade tensions, political upset and uncertainty, and stricter monetary and fiscal policy” all are forces that potentially could act as a brake on the global economy. “What you have now is not much more upside being seen, you see a lot more downside with the political agenda and trade conflicts, and no promise or hope for anything else like infrastructure,” PwC global chairman Bob Moritz told CNBC on Tuesday.

“The positive impact of the Trump tax cuts a year ago has dissipated and now sentiment is driven by the other side of the Trump economic agenda — namely, trade war,” said Nicolas Veron, a senior fellow at Bruegel think tank in Brussels and the Peterson Institute for International Economics. “Unlike the tax cuts, this is perceived very negatively by business. The high level of policy uncertainty associated with the unconventional features of the Trump administration is no good for business investment and business sentiment more generally.”

This same dynamic also poses a risk to consumer spending, despite the fact that certain key metrics that ordinarily indicate the potential for economic headwinds aren’t present right now. “Consumer sentiment is likely being impacted by the stock market volatility — even among those without equity holdings — and by the turmoil in Washington over the shutdown and trade conflicts,” said Martin Baily, a senior fellow in economic studies at the Brookings Institution. “The labor market remains very strong and there is little inflation,” he pointed out.

Some economists think the biggest risk is that the fear of the unknown could snowball and turn worry of impending economic decline into a self-fulfilling prophecy.

“Coming into this year, things look pretty good,” said Peter Morici, professor emeritus at the University of Maryland’s Robert H. Smith School of Business. “There isn’t anything endemic in the economy that would point to a recession.”

But Morici expressed concern that the “constant drumbeat” of negative predictions about slowing growth and recession fears could lead to real economic harm.

“That’s driving down expectations in a manner that’s inconsistent with the economic forecast,” he said. “You can talk yourself into a recession.”



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