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Economy Update


The White House says the fundamentals of the U.S. economy are strong despite the flashing of a few warning signs. The Federal Reserve in the person of the chairman, Jerome Powell, says the economy is in a, quote, "favorable place," though the Fed is wary of trade tensions and slowing global growth. Bond manager PIMCO is not so sanguine. We're joined now by the U.S. economist Tiffany Wilding. Thanks very much for being with us.

TIFFANY WILDING: Well, thanks for having me.

SIMON: What do you see that concerns you?

WILDING: I think one thing is that, you know, you have to look a little bit below the surface more recently on the economic data to really get a feel for what's going on because some of the things that the Trump administration is doing on trade policy is actually sort of artificially boosting growth.

And that is to say that when you're putting on tariffs on imports, what tends to happen before that is that you get a boost of activity because, you know, consumers or businesses, they want to try to buy the things that they need ahead of those tariffs to try to minimize at least some of their costs, especially if they think the tariffs are going to be transitory. So I think that's what we've been seeing over the past couple of quarters. You know, so the growth, although - in the U.S. economy, although it's been stronger or above trend on a headline basis - I think 2.5% - if you start to look under the surface, it looks a bit weaker.

And a couple of things that I would just note there. You know, we are seeing a manufacturing recession, manufacturing sector recession in the U.S. The global - you know, global - our global peers, global trading partners are also looking quite weak in terms of their growth. But I think the most concerning thing for us, at least more recently, is that that weakness is actually starting to spill over into labor markets, which is important for the consumer. And, really, the consumer's the backbone of the U.S. economy. So if you start to see the consumer really stop spending or pull back, you know, that's when things can get a bit fragile. And that's what we worry about.

SIMON: What - I gather you're concerned about aggregate hours, if you could explain that to us.

WILDING: Yeah. So when you think about the building blocks of, you know, GDP growth - like, what really is that? - well, it's really how many hours do I work as a person, and then how productive am I during those hours at creating the things that we produce in the U.S. economy. You know, so when we track activity, aggregate hours is one very nice way or one real-time way that we do that. And what we've been seeing more recently is that indicators of aggregate economy-wide hours have been falling, and they've been falling faster than we kind of thought that they would.

And I think the other important thing on this is that it's not just the manufacturing sector. So the manufacturing sector only makes up about 10% of the U.S. economy. So in and of itself, you know, it's not maybe enough to really push the U.S. into recession. But we're starting to see these aggregate hours decelerate in other services sectors. And that's why, you know, we've become more worried more recently, and we're starting to question whether, you know, the economy really is in a good place, as many have said.

SIMON: Your firm's the biggest bond manager in the world. Do you hesitate a bit before making a call like this, knowing that a lot of people are going to take a cue from it? Does talking more about the possibility of a recession make a recession more likely?

WILDING: Well, I mean, I think certainly uncertainty and rising uncertainty can exacerbate a downturn. And that's something that we worry about. You know, now, when you kind of think about how that plays out, one way that I think is really important is that you have, you know, investors, you know, that become more uncertain about the outlook are less likely to, for example, you know, buy corporate bonds or buy that new issuance. And in that kind of environment, borrowing costs rise. And when you have that, then that sort of helps to slow down the economy even more.

You know, so economists like to use fancy words. We call this a financial accelerator effect, so where you're getting this uncertainty that kind of, you know, causes markets to become disorderly, causes credit creation to decelerate. And that exacerbates a recession. So I certainly think that that is possible. You know, and I think that's another reason in favor of the Federal Reserve cutting rates, you know, trying to be more preemptive in this situation to try to keep confidence not from deteriorating too dramatically.

SIMON: PIMCO U.S. economist Tiffany Wilding. Thanks so much for being with us.

WILDING: Well, thank you for having me.

(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.

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