SOME DARK CLOUDS ON THE HORIZON FOR THE U.S. ECONOMY / BARRON´S MAGAZINE

Some Dark Clouds on the Horizon for the U.S. Economy

By Matthew C. Klein


Photograph by Christopher Burns


By most accounts, the American economy is doing well. Jobs continue to be added at a robust pace, wage growth is accelerating, and the stock market has largely recovered from its late 2018 swoon. Yet a few recent pieces of data highlight potential trouble spots.

Most obvious is the sharp slowdown in retail sales observed at the end of last year. CreditSights notes this could be a false signal not matched by some private-sector estimates:



But they also point out that the weak retail sales numbers fit with the sharply declining willingness of U.S. banks to make consumer installment loans:




Banks are also tightening standards on commercial and industrial loans for the first time since 2016. Back then, growth slowed sharply and the industrial economy went into an outright recession.

Consumer confidence has also taken a hit recently. Chart via CreditSights:



That could fit with the modest increase in the number of Americans filing claims for unemployment insurance since September.

The latest figures from the Federal Reserve Bank of New York’s Consumer Credit Panel also have a few warning signs. After years of steady growth since the trough in 2010, the number of new credit accounts opened by American consumers peaked at the end of 2016 and has now dropped by 6%.

Worryingly, this seems to be a lagging indicator: The number of credit inquiries peaked at the end of 2015 and is now down more than 20%. This measure of consumer credit demand has been declining ever since the Fed began raising its interest rate target and is now even lower than it was during the worst of the financial crisis.

Chart via Torsten Sløk of Deutsche Bank:



As he puts it, “Both the level and the trend in this chart are somewhat worrying.”

Data on U.S. freight traffic is another potential area of concern. This chart from John Kemp demonstrates the scale of the slowdown.

None of this is to say that a recession is imminent or that the Fed will soon be lowering interest rates and restarting its bond-buying programs. The data do suggest, however, that the relatively fast pace of U.S. growth in 2017 and 2018 may be difficult to sustain this year without significant policy stimulus.