The United States had a batch of chilling economic news on Thursday, deepening a Wall Street sell-off and putting a nagging question front and centre: are the good times really over?
Anxiety struck investors on Wednesday evening after Apple chief Tim Cook, head of a company only recently valued at $1 trillion, slashed sales forecasts, saying Chinese demand for iPhones had sunk amid a trade war with the United States.
Things were scarcely better on Thursday morning.
Private hiring figures showed the US labour market in rude health for December but an industrial survey quickly wiped out any good cheer.
The Institute for Supply Management’s manufacturing survey had its biggest one-month drop since the global financial crisis, with makers of fabricated metal goods, electronics and transportation equipment complaining of trade tariffs and weakening demand.
A similar December survey for China earlier this week had shown contraction for the first time in two years.
Less than a year ago, central bank chiefs in the world’s major economies had instead hailed the arrival of simultaneous global growth.
Meanwhile, US auto giants General Motors and Ford also posted deepening sales declines and Delta Airlines cut revenue forecasts, saying appetite for travel last month had been “more modest than anticipated.”
Top White House economist Kevin Hassett did little to calm investors on Wednesday, telling CNN that not just Apple but “a heck of a lot of US companies” exposed to the Chinese market were likely to see earnings downgraded until Washington and Beijing resolved their differences on trade.
This, he said, would put greater pressure on Beijing to strike a bargain with US President Donald Trump, who has imposed tariffs on more than $250 billion in Chinese imports.
Coming off its worst year since the global financial crisis, Wall Street predictably swooned on Thursday: toward 2000 GMT, the benchmark Dow Jones Industrial Average was down more than 600 points and the tech-heavy Nasdaq was flirting with bear market territory.
A stock market crash can spill over into the real economy, dragging down spending by consumers and local governments, slashing household net worths and eroding business confidence.
But 2018’s wild ride for stock markets has so far had “zero net impact” on growth in advanced economies, Oxford Economics said Thursday.
After a decade of economic expansion, US President Donald Trump has basked for much of his first two years in office in the glow of a growing economy and soaring stock markets, boosted by tax cuts and fiscal stimulus.
But a year later, the bloom is beginning to come off the rose.
The New York Federal Reserve Bank last month put the odds of a recession within a year at nearly 16 per cent. While still low, that is the highest level since October of 2008, the month after the start of the global financial meltdown.
While predicting a recession is famously difficult, the public is clearly on edge: internet searches for the word “recession” last month hit their highest level in seven years, according to Google.
Economist Joel Naroff said the latest numbers were not cause for panic.
“The so-called ‘Trump Bump’ that was seen in the markets and manufacturing has been largely wiped out. But that doesn’t mean the economy is headed into recession,” he said in a client note.
Instead, the United States was returning to “more normal” growth levels as the “sugar high” of the tax cuts fades into the past, he said, adding that the greatest danger of recession came from Trump’s trade war with China.
“We seem to be replacing the irrational exuberance of the election and tax cuts with an irrational despondence of a slowing economy.”