Growing Recession Risks Could Make Trump Even Less Stable

In recent weeks, new challenges have emerged to the conventional wisdom that the US economy is largely doing fine. Growth is projected to significantly decelerate this year, with first quarter growth seen at only 0.4% by the Atlanta Fed and 0.9% by Goldman Sachs. Manufacturing output, a key leading indicator of economic activity, has fallen significantly over the past six months, and four major manufacturing indicators (ISM PMIMarkit PMIPhilly Fed, and Empire State Fed) now show US industrial activity at its lowest level since late 2016. Finally, the most widely trusted recession indicator in the financial markets - the yield curve - is now at its flattest level (indicating its highest recession probability) since 2008, and the NY Fed's recession model shows a 24% chance of recession in the next 12 months, an alarming reading considering that over the past 40 years there has always been a recession within 12 months when the model has reached 28%.

An economic downturn, accompanied by a loss in confidence in the economy among the public, could significantly harm Trump's chances in 2020. While the President continues to have the consistently lowest first term approval rating in the post-World War 2 period, it has been kept above disaster territory by relatively strong approval of his economic management. For example, March's Ipsos poll showed his net approval at -13, but his net economic approval at +6. If such a downturn were to happen, therefore, the bottom could easily fall out on his Presidency, and a serious primary challenge could be undertaken against the President. As a result, as the economy continues to weaken, we'll likely see a more unstable and increasingly erratic Trump, who will try ever harder to please his base with even more reckless policies in an attempt to hide the slowing economy.

Weekly Notes On The Economy is a weekly column that NDN writes on the most recent economic news, policy, and data.