Frustrated Democrats still hoping in vain for recession

“Here Comes the Trump Slump” warned yet another anti-Trump column from New York Times columnist Paul Krugman last week. This is the same Paul Krugman who predicted the stock market would “never” recover from its initial sell-off on news of a Trump victory. He also said Trump’s election would usher in a global recession. Oops. 

Krugman writes that Trump’s trade policies are pushing the economy into a downturn, looking especially at the recent weakness in manufacturing and exports, which have indeed been dinged by the president’s confrontation with China. 

He suggests that a slowdown could so damage Trump’s reelection prospects that the president will probably pressure federal bean-counters to inflate the numbers. 

Man, this guy really hates Trump.

You can’t blame Democrats for trying to cook up a recession. They know it’s the only sure-fire way to take down the president. Yes, Ukraine is a mess, but voters will tire of the bickering, and the lines are already drawn. Trump supporters consider this yet another effort by hateful Democrats to undo the 2016 election; impeachment fans just want Trump out, at any cost. 

Ultimately, it is unlikely that many will change their vote based on an extremely partisan impeachment inquiry. 

A real recession, though, would undercut Trump’s reelection prospects. In particular, it could disaffect groups of people who are on the fence — blacks who like their community’s record-low unemployment or Hispanics who are enjoying their first pay hike in a decade. 

It would also likely prompt some of Trump’s 2016 supporters to stay home. Farmers today whose livelihoods are being hurt by the trade battle with China are wavering. Who can blame them? In a recent straw poll, 71 percent of farmers in a Farm Journal poll said they approved of how the president is handling his job. That was down from 77 percent at the end of last year. 

Democrats imagine that loss of enthusiasm could spread like wildfire among Trump voters if the economy tanks. That’s why they cheer every downdraft in manufacturing or CEO sentiment, and endlessly predict doom and gloom. 

But America’s cheerful and pesky consumers keep getting in the way. Gallup reports more people expressing satisfaction with the direction of the country than at any time (bar one outlier week) since mid-2009. The RealClearPolitics average of polls shows that 22 percent more people think the country is on the wrong track than on the right one. That’s not great, but at the same time in President Obama’s first term, in 2011, that margin was an extraordinary 52 points.

Maybe Democrats don’t understand the situation. Mr. Krugman, for instance, may have forgotten that monetary stimulus operates with a lag. Just as it took months for the seven Fed rate hikes of 2017-2018 to dampen growth (against a powerful upsurge of optimism caused by the election of President Trump), recent rate cuts will show up in coming months and offset some of the damage from the trade battle. The housing sector, in particular, is responsive to interest rate moves; new house mortgage applications in the most recent week were 10 percent higher than the year before. 

Not to single out Krugman. Just the other day, House Speaker Nancy Pelosi (D-Calif.) railed about the “soaring cost of living.” Ms. Pelosi may not spend much time cruising grocery store shelves, but someone should alert her that prices are barely rising today. 

The producer price index dropped 0.3 percent last month, due to decreases in the costs of goods and services, according to the Labor Department. For the 12 months through September, the producer price index rose only 1.4 percent, the smallest gain since November 2016. 

The lack of price inflation is surprising because for months we have heard from the liberal media that Trump’s China tariffs would clobber U.S. consumers. In fact, prices on imports from China dropped 1.6 percent year-over-year in August. Part of the decline is because the dollar has strengthened compared to the yuan. And maybe U.S. importers are swallowing some of the expense, but still… 

That’s not the only complaint coming from Democrats. Presidential candidates and Senators Elizabeth Warren (D-Mass.) and Bernie Sanders (I-Vt.) rail about income inequality, even as for the first time in many years, incomes at the low end of the earnings spectrum are rising the fastest of any cohort. Because of rising wages, the poverty rate has dropped to 11.8 percent, the lowest level since 2001. Surely that’s good news. 

But it’s not good enough for Warren, who wants to turn our economy on its head by putting the federal government in charge of “greedy” and “corrupt” corporations. She bemoans the popularity of stock buybacks, saying businesses should raise wages instead, and arguing that rising stock prices benefit only the wealthy. That is not true; some 55 percent of Americans own stocks either directly or through their pension plans.

Warren is noticeably mute on the fact that companies are hiking dividends aggressively, a boon to retirees and savers in this crazy new zero-percent world. In the second quarter, dividends paid by S&P 500 companies rose more than 6 percent.

And wages are in fact rising. Slowly, to be sure; the latest report from the Bureau of Labor Statistics shows average hourly wages up 2.9 percent from the year before. But that number does not reflect the number of people trading up to better jobs, and getting higher pay to do so. The recent JOLTs report suggests that quits remain high.

There is no doubt that growth has slowed in the U.S., and especially in trade-sensitive areas like manufacturing. But our country is still expanding and most economists say a recession is not yet on the horizon. Astonishingly, despite all the negative chatter, consumer sentiment remains elevated, and even increased slightly last month. Americans are earning, spending and saving more as well.

All of this must frustrate Democrats. It’s tough to campaign for radical change when people are so annoyingly happy. 

Liz Peek is a former partner of major bracket Wall Street firm Wertheim & Company. Follow her on Twitter @lizpeek.