Is the US economy headed for expansion?

A REBOUND in new business orders and manufacturing has led to hopes for continuous expansion in the US economy, which is on course for a slowdown.

With the US consumer still holding up the fort, more efforts to increase labour participation and income growth will further support consumer spending.

Interest rate cuts may help to boost sentiment and spending, while more structural reforms are required to bring people into the workforce and align jobs with changing trends.

Rate and tax cuts, and tariff collections can temporarily boost the economy; fundamental changes are required from policymakers who have to sit down and map the future.

Side shows on trade, geopolitics and elections detract attention from the focus to place the economy on a sustained footing.

With the right policies, the 11-year-old economic expansion can be stretched as a glass that is “much more than half full’ can be filled further,” said Federal Reserve chairman Jerome Powell.

These policies, which are beyond the scope of monetary policy, can spur further progress and build on ‘impressive gains’ made so far, he said. The Fed has cut rates by 0.75% this year which it sees as being successful in preventing worries on trade and global growth, from affecting the US economy. Looking behind the numbers, it is still early days to tell if the demand for new business equipment has turned around.

The spike in orders for key US capital goods in October was largely due to gains from orders for defense-related equipment; if such military hardware was stripped out, orders just notched 0.1% from 0.6%.

Higher demand for machinery, computers and electronic goods, and fabricated metals, boosted orders for core capital goods by 1.2% in October, the biggest jump in nine months. But the overall trend in this key measure of business spending, is not expected to signal big spending ahead as demand has fallen over the past year.

Amidst signs of continuous weak business spending and a manufacturing recession, incoming data will be closely watched for further signs of rebound.

The US flash manufacturing sector purchasing managers index for November, according to IHS Markit, had risen at the fastest rate since April, to 52.2 from 51.3 in October.

In its fastest expansion since July, the US flash services sector purchasing managers index in November increased to 51.6 from 50.6 in October.

Coming out today in the US will likely be data from the Institute for Supply Management (ISM) on the manufacturing purchasing managers index for November.

For three straight months to October, the ISM index had shown a decline at 48.3; any number below 50 shows a contraction.

“In any case, a clear slowdown is in place; the question is whether the end game is a soft landing or recession,’’ said Inter-pacific Securities head of research Pong Teng Siew.

The signs are for the trajectory of a slowdown to continue until at least the second quarter of next year; at that point, we are likely to have a clearer view.

So far, the slowdown has been gentle enough to raise hopes for a Goldilocks scenario, where there is a balance between growth, employment and inflation, for the US economy.

Revisions to data in 2019 following the year end may change the outlook entirely.

In the 2007-2009 recession, revised estimates by the Bureau of Economic Analysis (BEA) indicated that real Gross Domestic Product (GDP) from the fourth quarter of 2007 to the second quarter of 2009, had declined at an average annual rate of 3.5% instead of earlier estimates at 2.8%.

In the fourth quarter of 2008, the BEA estimated that the US economy contracted by 6.3%; by the 2018 revision, the drop was much worse at 8.4%.

Trade still dominates the outlook as anxiety resurfaces over the US signing of the Hong Kong Human Rights and Democracy Act, which raised the ire of China.

Against the speculation that trade and the Hong Kong bills could be treated as separate matters, businesses are hopeful that the first phase of the Us-china trade deal can be signed by December 15, when the next round of US tariffs kick in.

This will pave the path for more positive outcomes in the second and third phases of negotiations, said Socio Economic Research Center executive director Lee Heng Guie.

With just a short time away, and uncertainty also over the extent of agreement over China’s request for tariff rollbacks, both parties may not make it by then.

Too many roadblocks, with delay after delay, render these negotiations as exercises that challenge the stamina of all involved, including bystanders which are the smaller, trade dependent nations.

Columnist Yap Leng Kuen sees the constant popping up of a “spanner in the works.”