The Next Doom-and-Gloom Plan for Democratic Hopefuls

The 2020 Democratic candidates for President of the United States are quickly realizing that campaigning on a slippery slope always results in failure.  Currently, with members of the media and talking-head pundits shouting scary headlines about an inevitable recession in the United States, we find the contenders trapped in a corner:

Hope for a recession that will penalize President Trump, though don’t wish financial Armageddon for Americans.

This isn’t Burger King, candidates Warren, Sanders, O’Rourke, Biden, et al; you can’t have it your way.

Since Trump won the 2016 election fair and square, influencers from the Democratic National Committee have been doing their best to spin negative news in hopes of derailing the President and his domestic (i.e., economic) agenda.

After all, people vote with their wallets; although this mantra didn’t hold true in 2012 and President Obama was still re-elected despite an awful economy.  A story for another time, I suppose.

Present day, and only 14 months away from the next Presidential election, one thing is for certain: The United States economy is doing just fine.  Coast-to-coast, on average, it continues to persevere and thrive.

The first metric Wall Street analyzes when forecasting the domestic economy is Gross Domestic Product.  To maintain an adequate number of new jobs factoring in population growth, the U.S. economy needs to see GDP grow between 2.0 and 2.5 percent.  Anything below 2.0 and there is a fear of a slowdown; a number above and economists start using terms like “piping hot” to describe the country.

The 2019 report card is as follows: 3.1 percent GDP in the first quarter, 2.1 percent in the second quarter.  Overall, these figures are perfect and signal job growth, consumer confidence, and a robust America.

The second metric to follow is the unemployment rate.  Currently, the United States boasts a very low unemployment rate of 3.7 percent.  And as YahooFinance reported, “the U-6 measure of unemployment—a broad metric capturing both the unemployed and those too discouraged to seek out work—declined to 7.0% in July, the lowest level since December 2000.”

But only one week ago, all the world heard was doom-and-gloom for the United States.  A day after the Dow gave up 800 points, the universe felt America was headed to Great Depression 2.0.  An amazing reaction, considering the double-digit returns the markets have provided since Trump took office in January 2017.

Democratic candidates for President could hardly curb their enthusiasm for America’s sudden and rapid financial demise.  Beto O’Rourke said on Meet the Press that he’s afraid President Trump’s tariffs on China are “driving the global economy and our economy into a recession.”  Pete Buttiegieg followed up by calling Trump’s tariffs a “fool’s errand.”

Elizabeth Warren couldn’t help but pile on after the sudden market drop by highlighting a few data points that “could cause our economy’s shaky foundation to crumble.”

Shaky foundation?  Where exactly is it shaky?

If you look at recent economic numbers, the United States is in the best shape that is has been in decades.  Big-box discount retailers, Walmart (NYSE: WMT) and Target Corp (NYSE: TGT) both beat sales expectations for the second quarter and even raised their profit guidance for the full year, shrugging off concerns about tariffs, as reported by Bloomberg News.

“Paired with the bullish comments on the U.S. housing market this week from Home Depot Inc. and Lowe’s Corp., the outlook heading into the critical holiday period looks brighter,” added Matthew Boyle of Bloomberg News.

Democrats must be concerned with the strength and resiliency of the American shopper.  Even staring into the teeth of tariffs hasn’t caused buyers to pause and has had little to no effect on confidence.

“The consumer economy continues to motor along nicely,” said Neil Saunders, an analyst at Global DataRetail.  “Home improvement is an early indicator of economic distress and from Home Depot’s numbers, there was no sign that the consumer is in a tailspin.  Target and Walmart, both bellwethers for mainstream America, point to the same conclusion.”

Democrats have been doing their best to find the one item, the absolute breaking point moment, to change the minds of the American voter.  If history holds true and repeats itself, the DNC would likely be best served to focus on 2024 after Trump’s second and final term is complete.

Goldman Sachs recently published a chart detailing the odds of a re-election for President Trump; and the numbers are certain to dent the hopes of all twenty-plus Democratic candidates.

As reported by Barron’s, Goldman forecasts a 2.2 percent GDP growth rate for the final two years of Trump’s first term.  By this metric, Trump will preside over an economy as healthy as that of Bill Clinton in 1996 and George W. Bush in 2004.

“Plotting popularity and GDP for incumbent elections going back to Lyndon Johnson in 1964 yields a scatterplot showing how well an incumbent has to do on one measure to make up for weakness on the other.  Long story short, Trump is doing well enough on the economy to make up for his low approval rating—and win,” as Barron’s reported.

The final piece economists and market strategists are pointing to is the Federal Reserve decision to cut interest rates by 25 basis points at its July meeting.  Despite the healthy GDP target and remarkably low unemployment rate, the FOMC decided to be proactive rather than wait for financial trouble to occur and voted for the quarter percent reduction.

If this is the trend, and all signs appear to be future cuts are on the horizon, markets will continue to cheer and soar to new highs well into 2020.  If this is indeed the case, then all Americans can expect inflated 401k statements and financial dreams coming true; resulting in an almost certainty of a reelection for the incumbent next November.

By: Todd M. Schoenberger, Senior Research Analyst and Director of Research for Wellington & Co. Hedge Fund Research, and author of No Lie Lives Forever

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