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

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