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MNI INTERVIEW: US Growth May Slow on Trade Worry-Fed Economist

By Jean Yung
     WASHINGTON (MNI) - U.S. economic growth could slow over the next six months
because trade policy uncertainty is sidelining business spending, Federal
Reserve Bank of Chicago adviser Bill Strauss told MNI.
     The economy will likely face more trade-related headwinds given the Trump
administration's record of threatening tariffs on major trading partners. If
businesses view that risk as more than temporary, the economy can downshift, he
said.
     "As we came into 2019, there was a sense that if you could delay an
investment let's delay it until we can get greater clarity," Strauss said in an
interview last week. "We could, in the second half of the year, be getting close
to the point where businesses will have to make tough decisions." 
     "The longer you have uncertainty, the closer you get to a point where
delaying means foregoing opportunities. You might not be putting in place
something where you can sell more product into certain markets. And at some
point you can only delay for so long."
     Wary of rising risks to the global outlook and lower business confidence
amid trade tensions, the FOMC last month indicated it was unlikely to raise
rates this year, pivoting instead toward a potential rate cut as its next move.
     --MANUFACTURING WEAKENS
     Shaky business confidence is starting to show, with the June manufacturing
ISM survey slipping to 51.7 from 52.1 a month earlier. Key regional Fed
manufacturing surveys deteriorated across the board in June and the MNI Chicago
PMI signaled a contraction for the first time since January 2017.
     "Manufacturing has had a pretty tough start to the year," Strauss said.
Strauss said. Hiring softened while trade tensions and inventories build-up
"might have had some impact on production," he said.
     Chicago Fed district companies remain unworried so far, viewing the
slowdown as temporary. "Most of our contacts expect growth to be OK this year,
but not great. Last year was a spectacular year, and I haven't heard anyone
expecting a repeat of that."
     That sentiment jibes with the median outlook from the Fed's latest economic
projections for 1.8% to 2.1% growth in the next couple years. Growth was 2.9% in
2018 when there was a major boost from fiscal stimulus.
     Consumer spending continues to bolster overall activity while the
unemployment rate remains very low. Vehicle sales are "decent," and equity
markets are "indicating strength," he said.  
     The Fed is monitoring the situation as it develops, but the economy "seems
to be on solid footing in general," Strauss said. "Even with all the
uncertainty, the Fed still thinks the most likely story is growth continuing,
albeit at a slower pace than the past year."
--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com
[TOPICS: MMUFE$,M$U$$$]

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