On March 9 the New York stock market plunged within five minutes of its opening, with the S&P dropping 7%. This triggered an automatic halt in trading for 15 minutes. Traders have been spooked by COVID-19, which has disrupted China’s economy and threatens the US economy as well.
This may portend a recession, but there are other indicators, too.
The outlook for the big US multinationals is not so hot. Apple is already factoring in a decline due to its operations in China. To say that Boeing is yet to recover from the 737 Max disasters is an understatement. General Motors’ global sales have “plunged 23% over the past three years, from 10 million vehicles in 2016 to 7.7 million vehicles in 2019.” This is now approaching its sales level during GM’s infamous bankruptcy year of 2009. Even before the coronavirus outbreak, it was doubtful that China would be able to fulfill its part of the Trump trade deal exigencies (purchase of farm goods). Prospects are now worse due to the virus outbreak.
One of the barometers used to evaluate the prospects of a recession are shipping data. The signs are ominous: shipment volume in the US by “truck, rail, air, and barge plunged 9.4% in January 2020 compared to an already weak January a year earlier. It was the 14th month in a row of year-over-year declines,” and the steepest since the financial crisis of October 2009. Keep in mind, though, that the US escapes the recession in manufacturing because it is now a more or less services economy. As for commodity prices, the coronavirus is guaranteed to make those plunge, which will make the already unprofitable US fracking industry even less lucrative.
From the point of view of the capitalists, there is good news. A bright spot in the economy is e-commerce: retail sales “jumped 16.4% in the fourth quarter of 2019 compared to a year earlier,” to $187 billion, reaching $602 billion for the year. According to the U.S. Commerce Department, this was double the amount five years ago. Overall consumer spending, which accounts for two-thirds of economy activity, has been propping up the economy.
And then there’s the national debt. The tax cuts to the wealthy and increases in military spending have contributed to a $1.3 trillion spike in the US Gross National Debt over the past 12 months, to $23.3 trillion. Such frugal Republicans!
Image: Harrie van Veen, Creative Commons (BY 2.0).
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