Tags: businesses | trade | war | govt | shutdown

Trade War, Shutdown Starting to Worry Businesses

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Tuesday, 15 January 2019 02:13 PM Current | Bio | Archive

INDICATOR: December Wholesale Prices and January Empire State Manufacturing Index

KEY DATA: PPI: -0.2%; Goods: -0.4%; Services: -0.1%/ Empire State: -7.6 points; Orders: -9.9 points; Jobs: -10.1 points

IN A NUTSHELL: “Businesses are becoming more cautious about the future as the shutdown and trade battles start to bite.”

WHAT IT MEANS: While the economy slowly burns and Washington fiddles, the negative economic data are starting to mount. One part of the government that is open is the Bureau of Labor Statistics and the data continue to be released, at least most of it. December’s Producer Price Index pointed to a slowing in cost pressures at the wholesale level. Clearly, the sharp drop in energy-related products (-5.4%) was the driving factor. On the other hand, food prices soared, which they have been doing for a while. Still, excluding the volatile components, goods prices were largely flat. As for services, where much of the inflation had been coming, costs declined. Construction costs, which also had been on the rise, posted only a modest gain. Most components of the report were either flat or down, indicating there is limited price pressure at the finished goods or services level. As for the pipeline, except for foods, there appears to be no reason to think that there will be accelerating business costs in the next few months.

The manufacturing has been expanding and hiring like crazy, but that may be coming to an end. The New York Federal Reserve Bank’s Empire State Manufacturing Survey tanked in early January. Just about every component measuring current conditions posted large declines. Not surprisingly, the outlook for the future fell sharply as well. Expectations on new orders are now barely positive and hit the lowest level in nearly two years. New York may not be the center of the world when it comes to manufacturing, but the level of decline is a warning.


We now have the longest government shutdown on record. Yes, it is a “partial” closure, but that doesn’t make much of a difference to the workers who are not being paid and businesses that cannot get things done because agencies are closed. How much the shutdown will take out of growth is uncertain as it depends upon when the government reopens. The sooner sanity returns to Washington, OK, forget that. The sooner there is a bill that allows for the government to fully reopen and stay open and pays the workers and allows businesses who cannot get their subsidies, licenses, permits or whatever to get back to normal, the smaller the ultimate impact. But if it lasts an entire quarter, look for a GDP number that is probably in the 1% to 1.5% range, or even lower. Indeed, you cannot rule out a negative number. Speaking of GDP, the first reading of fourth quarter growth is scheduled to be released on January 30th. The Bureau of Economic Analysis, which produces the report, is not open. Given the stands taken by the major actors in this Shakespearean tragedy seem to be rock solid, there is a real likelihood the report will be delayed. In addition, some of the numbers in the monthly employment report, most notably the unemployment rate, may not be available since they require data produced by the Census Bureau, which is closed. Is everyone enjoying the chaos?

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.

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If the shutdown lasts an entire quarter, look for a GDP number that is probably in the 1% to 1.5% range, or even lower. Indeed, you cannot rule out a negative number.
businesses, trade, war, govt, shutdown
Tuesday, 15 January 2019 02:13 PM
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