The US economy is on a roll, producing more than 200,000 jobs in the last month alone with economic growth possibly heading to 4 percent. So why has the stock market largely traded sideways for most of this year, as if the current economic expansion is a mirage that could soon vanish into thin air?
The reason, according to more than a few traders and investors, is a genuine concern that the Trump economic boom could end up being a blip, the great headline numbers concealing a weakness that will dramatically worsen if Trump’s tax cuts don’t produce meaningful and sustained growth and his trade threats turn into a full-blown trade war.
To be sure, the 213,000 jobs created in June, as reported Friday by the Bureau of Labor Statistics, weren’t a figment of anyone’s imagination. According to the report, the unemployment rate ticked up to 4 percent from 3.8 percent, but only because 600,000 new people entered the workforce. People who left the workforce are increasingly confident about their job prospects.
Even more: Some economists are predicting what was once considered a miracle, particularly during the low-growth Obama years: 4 percent of quarterly GDP growth.
Not too shabby, right? The market seemed to think so, with stock prices moving higher.
But dig deeper into the official stats, factor in Trump’s trade war and dissect the stock market a bit more and you can understand why a sizable number of sophisticated investors say now isn’t the time for Trump to declare mission accomplished.
Look at how stocks have traded since President Trump signed his tax bill and began clamoring for a trade war. Since late December, the Dow is down a few hundred points.
Of course, this market reaction came after a tremendous rally that began when Trump was elected on the promise of lower taxes and deregulation. Some investors are profit-taking and just waiting for the first signs of a dramatic pickup in economic growth and corporate earnings to jump back in.
But many are also betting against this rosy scenario.
One of the big problems with the Obama recovery was that people who found jobs often had to work for very low wages. There was plenty of work for high-end computer programmers, and maybe lots of jobs at Walmart, but the vast middle was shrinking.
Things with Trump in office are supposed to be different — but they’re really not. According to the June jobs report, year-over-year average hourly wages grew at just 2.7 percent, which is about where they were during the tail end of the dismal Obama years.
Of course, many Trump supporters on Wall Street will tell you (as they argue incessantly to me) that the president has really only just started working his magic.
The tax cuts, including the massive corporate one, are just six months old and will soon kick in. Deregulation of everything from environmental standards to banking is adding to earnings, and big companies have to do something with that money, now that they don’t have to horde it overseas to escape the punitive US tax system, which means hiring will continue to grow.
Maybe, maybe not. Companies appear to be hiring, but they’re also using a lot of their excess cash to buy back their shares because they don’t have a pressing need for massive amounts of new workers.
And they apparently don’t think their workers will be jumping ship anytime soon, which is why wages have remained low.
That could be because the massive corporate tax cut won’t provide a big enough boost to the economy, jobs and wages as companies use the money to benefit their investors more than their employees, while Trump’s more modest tax cuts for small businesses and individuals won’t make up the difference.
Then there’s the looming trade war, and Trump announcing tariffs not just against the perennial bad actors like China. It doesn’t take a rocket scientist to figure out that even our global trading partners will respond with tariffs of their own, raising the prices of parts and raw materials and forcing US manufacturers to cut jobs to remain competitive.
That’s why the company Trump referred to as an American “icon,” motorcycle manufacturer Harley-Davidson, announced it’s moving some of manufacturing overseas.
This may prove to be unwarranted doomsaying. But these concerns shouldn’t be dismissed. The most objective measurement of the future growth of the economy — the American stock market — is taking them seriously, and so should you.
Charles Gasparino is a Fox Business senior correspondent.
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