Surging economy, strong jobs market set to reckon with tariff drag
Detroit — The economy’s roaring: growth is surging, unemployment is near record lows and President Donald Trump is claiming all the credit.
Whatever. The more important question is how long the accelerating nine-year expansion will last — and growth has quickened in the wake of last year's tax cuts and increased spending — amid a multi-front trade war the president shows no sign of abandoning.
"Trade is a source of uncertainty right now," Federal Reserve Governor Lael Brainard told the Detroit Economic Club on Wednesday. "For some sectors there is some impact. But we're really not seeing ... a discernible impact overall. I don't see any of that in the data today."
Emphasis on the word "today." Because the after-shocks of escalating trade actions are only just starting to filter into the marketplace, into specific industries, into selected workforces. Workers at United States Steel Corp. and ArcelorMittal SA, according to The Wall Street Journal, are demanding higher pay now that steel tariffs are fattening the bottom lines of their employers.
Ford Motor Co. abruptly killed plans to assemble its Focus Active crossover in China and export it back to U.S. showrooms come 2020 because rising tariffs would make the low-volume product unprofitable. General Motors Co. is seeking a tariff exemption for its Chinese-made Buick Envision SUV — a request that is not guaranteed approval.
And growing numbers of industries are increasing their anti-tariff lobbying in Washington because the escalation, principally by China, the European Union and Team Trump, threatens to undercut their business, inflate their costs or both.
A coalition of 86 trade associations calling itself "Americans for Free Trade" on Wednesday pledged to support the "Tariffs Hurt the Heartland" campaign and launched TariffsHurt.com. Its searchable map shows the impact of new tariffs in job losses, deferred investment and higher prices.
"While we agree that there are issues that need to be addressed with key trading partners, tariffs are the wrong approach to bring about meaningful change," the coalition wrote in a letter to House Speaker Paul Ryan, R-Wis., and Democratic Leader Nancy Pelosi, D-Calif. "Every day, companies large and small are sharing their stories of the harm the tariffs and ensuing retaliation are causing across all sectors of the American economy.
Not that a Fed governor, like Brainard, is eager to wade into that politically charged morass. So she mostly didn't, an understandable position given the traditional reserve practiced by Fed governors. It's also understandable given the president's penchant for trying to politicize the decision-making of the nation's chief monetary policy-making institution.
“I don’t like all of this work that we’re putting into the economy and then I see (interest) rates going up,” Trump complained to CNBC in July. "Because we go up and every time you go up they want to raise rates again. I don't really — I am not happy about it. But at the same time I’m letting them do what they feel is best.”
And that appears to be a go-slow approach to raising rates after roughly a decade of essentially free money, Brainard signaled, the better to assess the impact of the Fed's policy decisions — and external factors it doesn't control — on the nation's economy, as well as the Fed's mandates to control inflation and maximize employment.
"By any measure, overall growth in the second quarter was strong," Brainard said. "Looking ahead, it looks like growth will remain strong. The labor market is also strong. The tight labor market is providing ... opportunity to a broader number of Americans."
That's something to acknowledge, if not celebrate, in the aftermath of the Global Financial Meltdown. It put Detroit and its hometown auto industry on their collective knees less than a decade ago, a precondition for the most sweeping restructuring this town has seen since World War II.
There's more. Middle-class incomes topped $61,000 for the first time last year, according to the U.S. Census. Real GDP growth is proving sustainable in the near-term, thanks in part to the "tailwinds" of tax cuts and increased spending. Job openings hit a 17-year high in July.
The unemployment rate continues to plumb lows that effectively mean the economy is at full employment. The national unemployment rate settled to 3.9 percent in August. And if the downward pressure on the rate continues. Brainard said, the country will see unemployment rates not seen since the 1960s — Detroit's last Golden Age.
It's an encouraging outlook grounded in reality. Whether it can transcend the tug of tariffs and the potential political backlash of mid-term elections remains to be seen, even at the Fed, apparently.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM