Inventory correction comes at the wrong time for Trump, GOP

A massive fall in the stock markets this week gives rise to fears of a sharp market correction – and could also shatter the economic message of the last weeks of the mid-term campaign. President TrumpDonald John TrumpJim Carrey and Trump at the Los Angeles Gala: Shamelessness is not a superpower An alleged Pittsburgh gunman charged with 29 counts Rand Paul sends Saudi Arabia to a rally with Trump Jr. PLUS and Republicans.

The Dow Jones Industrial Average canceled all of its gains in 2018 this week, while the S & P 500 plunged into correction territory, falling 10% below the peak reached in September.

Economists warn that the fall of the stock market may not just rebound, as has been the case several times this year. The market, they say, tends to be an early predictor of economic performance and could signal a worsening of the economic situation.

Statistics released by the government on Friday showed the economy was growing at a brisk pace of 3.5 percent in the third quarter. However, this figure was 4.2% lower in the second quarter.

"The stock market anxiety reflects the reasonable fear that the economy will slow down in the future," said Mark Zandi, chief economist at Moody's Analytics. "The economy is growing fast, but growth has peaked and is evident in the current GDP. [gross domestic product] number."

Republicans had hoped that the economy would help them this fall, and candidates across the country continue to try to use it to boost their re-election cases.

"Right after the election of the administration, the stock market has skyrocketed," said Rep. Dave Brat (R-Va.) During a debate against Democratic challenger Abigail Spanberger at the start of the month.

The two men are stuck in an assault race for a district that has belonged to the GOP for decades, highlighting the difficult context for many Republican House candidates this fall.

Brat argued that returning the majority of the House to Democrats would put an end to good economic times.

"This is not the time to go back to the Obama era and the economy that failed," he said during the debate.

Falling markets could weaken this kind of argument, especially because with the recent losses, markets under Trump have not grown at the pace of the markets under Obama.

The Dow Jones rose 41 percent between the inauguration of Obama and the two-week period that preceded its first half. Since the inauguration of Trump, it has increased by 25%.

Since the economic downturn, Trump has become a dude in the markets. He moved away from his complaints on Twitter last week that the media did not pay enough attention to the stock market.

GDP growth in the third quarter was fueled primarily by consumer spending and retail inventories, which generally reflect short-term confidence in the economy. Business investment and capital expansion have fallen in the past three months, suggesting that the Trump boom could be outpaced.

"It's a real sugar rush. That's what happens when there is a sudden increase in household income, "said Daniel Alpert, managing partner of investment firm Westwood Capital.

"The economy is overhyped."

The GOP's tax reduction law has had an undeniable effect on the markets and the economy. It increased inventories in 2017 as traders anticipated tax cuts and then contributed 4.2% growth earlier this year.

The law, however, has not been politically popular, judging by polls.

A NPR / PBS NewsHour / Marist poll released on Friday revealed that the law made people more likely to vote for Democrats with a margin of 45% to 39%.

While many companies have announced increases and staff expansion plans as a result of the Tax Reduction Act, investments in training, equipment and facilities that boost economic productivity have increased little, said Zandi. Instead, he said, the bulk of fiscal stimulus resulting from tax cuts was achieved through rising consumer spending and other unsustainable short-term benefits. term.

Zandi said the benefits of lowering corporate tax rates were probably offset by higher interest rates, due in part to a $ 1.5 trillion cut in taxes.

"If you borrow money to pay the tax cuts, interest rates will rise, as well as the cost of capital," said Zandi, saying the bill was "a very expensive way to go nowhere. "

Trump in recent weeks has criticized the US Federal Reserve for rising interest rates, which she described as "loco" and "too aggressive."

Democrats have placed GOP calls for rights reduction at the center of their economic messages.

"Republicans have dug a $ 2 trillion deficit in the federal deficit to fund a tax cut for the rich. Suggest now to remove acquired middle class programs such as Medicare, Social Security and Medicaid, as the only financially responsible solution to solving the debt problem, is nothing less than bursting of gas, "head of the Senate, member of the minority. Charles SchumerCharles (Chuck) Ellis SchumerScarborough complains to GOP candidates by promising protection from pre-existing conditions: "They are all lying" Manchin faces progressive reactions in West Virginia The Hill's Morning message priority policy in autumn campaigns MORE (D-N.Y.) Said earlier this month.

The NPR poll found that 60% of those surveyed would prefer to cut tax cuts as a way to reduce the deficit rather than cut spending and allocation programs such as Medicare, Medicaid and Social Security.

Despite these problems, Republicans are better positioned than Democrats in 2010 in regards to the economy. At the halfway point, Democrats lost their majority in the House and more than 60 seats.

The unemployment rate went from 4.8% when Trump took office at 3.7% in September. Under Obama, who took office as the Great Recession continued in the economy, the rate went from 7.8% to 9.5% in the same period before falling to 4.6% at the end of 2016.

In terms of growth, the economy is also doing relatively better.

Under Trump, quarterly growth averaged 2.8. When Obama had his first mid-term goals, average growth had stagnated at 1.3%, driven by negative growth in the last two quarters of the recession.

Nevertheless, voters are generally more concerned about what they think of the economy than what the newspapers talk about.

According to the University of Michigan survey, consumer sentiment on the economy is higher in 2018 than any year since 2000. Household debt has also steadily increased throughout the Trump period, a sign that Consumers are comfortable with their ability to repay their expenses over the long term.

Nevertheless, the delay in wage growth and labor productivity could negate the rush of spending and confidence if consumers were unable to keep pace with rising interest rates. and prices.

"You are looking at these numbers and wondering what is left of spending power. They will not continue to go into debt, "said Alpert. "Maybe the growth margin is a little bigger, but it's not healthy because it's not all created by real wage growth."