Moody
President Donald Trump may “tariff” the U.S. into a recession that could have been avoided, says economist Ryan Sweet of Moody’s Analytics, who won the Forecaster of the Month contest for July with his accurate predictions on monthly and quarterly economic data.
Sweet remains optimistic that Trump will veer away at the last minute, and that the expansion could continue through the end of 2020, at least.
“You can’t forecast what’s coming out of the White House.”
“If Trump backs off, the economy will take off again,” he says. The Federal Reserve will likely cut interest rates a couple more times, but rate cuts won’t save the economy if Trump escalates further, he says.
“There’s only so much the Fed can do to cushion the economy.”
His firm predicts that gross domestic product will grow 2.3% in 2019 and 1.7% in 2020. But Sweet isn’t confident at all that he — or anyone else — can accurately predict what will happen.
“You can’t forecast what’s coming out of the White House,” he says.
Sweet, director of real-time economics at Moody’s Analytics, has won MarketWatch’s forecasting contest four times. He’s in the thick of a three-man race for Forecaster of the Year honors.
Sweet said business leaders and investors have become conditioned to a “Trump put” that protects them from the worst. Trump’s MO has been to “talk tough when the stock market SPX, +0.08% is high,” but then de-escalate tensions when the market softens.
That is still Sweet’s baseline forecast.
However, he says, “the Trump put may fade away.”
It all comes down to confidence. “The collective psyche is very weak,” he says. Consumers remain confident in their finances and jobs, but businesses are growing wary of Trump’s trade wars. If Trump escalates the trade war with China, businesses could pull back their investments even more, weakening both capital spending and hiring.
“And if layoffs begin, it’s game over,” Sweet says.
Sweet says the key economic statistic to watch over the next few months is the weekly jobless claims data. Although weekly numbers can be volatile, he says the level to watch is when the four-week moving average breeches 250,000.
Once consumers noticed that the unemployment rate is rising, they would pull back their spending sharply and try to ride out the storm.
The increase in tariffs and trade tensions is working out pretty much according to Econ 101, Sweet says. The trade deficit with China has narrowed, but has widened with other countries. The manufacturing jobs that Trump promised to bring back weren’t.
“The cost is noticeable, but it’s been no knockout punch,” Sweet says.
In the July contest, Sweet had the most accurate forecasts on two of the 11 indicators we track: Industrial production and housing starts. His forecasts on three others — nonfarm payrolls, the trade deficit and consumer confidence — were among the 10 most accurate out of 43 forecasting teams.
| Sweet’s forecast | Number as reported* | |
| ISM | 50.7% | 51.7% |
| Nonfarm payrolls | 190,000 | 224,000 |
| Trade deficit | -$54.7 billion | -$55.5 billion |
| Retail sales | 0.1% | 0.4% |
| Industrial production | 0.0% | 0.0% |
| Consumer price index | 0.0% | 0.1% |
| Housing starts | 1.252 million | 1.253 million |
| Durable goods orders | -0.2% | 2.0% |
| Consumer confidence index | 127.6 | 135.7 |
| New home sales | 658,000 | 646,000 |
| Gross domestic product | 1.6% | 2.1% |
| *Subject to revisions | ||
The runners up in the July contest were Avery Shenfeld of CIBC World Markets, Lewis Alexander of Nomura, Stephen Stanley of Amherst Pierpont Securities, and Christophe Barraud of Market Securities.
The MarketWatch median consensus published in our Economic Calendar includes the predictions of the 15 forecasters who have earned the most points in our contest over the past 12 months, plus the forecast of the most recent winner of the monthly contest.
The economists in our consensus forecast are: Christophe Barraud of Market Securities, Jim O’Sullivan of High Frequency Economics, Ryan Sweet of Moody’s Analytics, Ian Shepherdson of Pantheon Macro, Richard Moody of Regions Financial, Andrew Hollenhorst of Citigroup, Michelle Girard’s team at NatWest Markets, Ellen Zentner’s team at Morgan Stanley, Seth Carpenter’s team at UBS, Michael Feroli of J.P. Morgan Chase, Stephen Stanley of Amherst Pierpont Securities, Spencer Staples of EconAlpha, Michael Gapen’s team at Barclays Research, Stephen Gallagher’s team at Societe Generale, and Ward McCarthy of Jefferies.
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