Tolu is a cryptocurrency and blockchain enthusiast based in Lagos. He likes to demystify crypto stories to the bare basics so that anyone anywhere can understand without too much background knowledge. When he's not neck-deep in crypto stories, Tolu enjoys music, loves to sing and is an avid movie lover.
If current manufacturing data is anything to go by, the United States is uncomfortably close to a recession. The problems the U.S. currently has with China is on top of the list of causative factors.
There is more than a lot to take in when considering the current economic and political landscape in the United States. Quite recently, an official impeachment inquiry was announced by Nancy Pelosi, the Speaker of the House of Representatives, against President Donald Trump. Long before this, many people including economic analysts and businessmen alike, have been strongly of the opinion that the U.S. is on the verge of a recession and more people seem to be corroborating this. Now apart from repeated calls from experts, there is some data to back a possible recession.
The U.S. Manufacturing Purchasing Managers’ Index by the Institute for Supply Management (ISM), hit a new and disappointing low which was last seen more than ten years ago in June 2009. The index dropped to 47.8% for September, bringing in the second successive occurrence of contraction, which happens when the index falls under 50%.
The information from ISM also showed that the export orders index hit 43.3% in August and had dropped to 41% by September, another low in more than ten years since March 2009. According to Timothy Fiore who leads the ISM Manufacturing Business Survey Committee:
“Global trade remains the most significant issue, as demonstrated by the contraction in new export orders that began in July 2019.Overall, sentiment this month remains cautious regarding near-term growth.”
The ongoing and intense trade tension between the U.S. and China has been repeatedly fingered as the cause of the drop in U.S. manufacturing as tariffs between both countries have considerably impacted manufacturing growth quite negatively.
Steel tariffs, for example, have bitten down on the industry, shooting the price of raw steel as high as 25%. This has had a severe effect on all related businesses so much so that many have paused several plans, significantly reduced their staff strength with some even considering abandoning the U.S. for other more favorable climes.
A spokesman for the Mid Continent Nail Corporation, the largest producer of steel nails in the U.S., has suggested that the company might move to Mexico or shut down entirely. As Bleakley Advisory Group Chief Investment Officer, Peter Boockvar put it:
“We’ve now tariffed our way into a [manufacturing] recession in the US & globally…Using tariffs as the tool to push back against China was a dumb idea & history will not look kind upon the strategy just as it didn’t for Reed Smoot, Willis Hawley & Herbert Hoover.”
The threat of a recession now seems to be a lot more real than ever and is being backed up by more people. Jeffrey Gundlack, the billionaire CEO of DoubleLine Capital which is an investment management firm with assets above $140 billion under its wings, has also suggested that its almost entirely certain that America will fall into a recession before next year’s presidential election.
It’s quite obvious that if the U.S.-China trade tension ends sometime soon, a recession could possibly be circumvented. However, this seems like a pipe dream as its unlikely that any of both countries would be backing down anytime soon. Already GDP growth is seeing a drop with private capital applications also falling by the quarter.