Fear of Recession Rises as Wholesale Prices Fall

The Mortgage Corner

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MarketWatch

The wholesale cost of raw and partly finished goods both fell in August and are negative in the past year, suggesting little inflation in the “pipeline,” according to the Bureau of Labor Statistics.

Wholesale inflation has fallen from its high in 2018 as the Trump tax cut stimulus has worn off, though the increase in the core rate of wholesale inflation over the past 12 months rose slightly to 1.9 percent in August from 1.7 percent. Economists prefer core inflation readings because food, gas and trade margins can swing sharply from month to month and mask underlying price trends.

The reason? President Trump’s trade negotiations have pushed his poll ratings back below 40 percent in the latest ABC News poll. Six in 10 Americans now say a recession is likely in the next year and as many are concerned about higher prices because of the trade war with China, helping to knock 6 points off President Donald Trump’s job approval rating in the latest ABC News/Washington Post poll.

This is actually putting downward pressure on prices, as such fears reduce the demand for goods and services in general. Ratings of the U.S. economy overall, 56 percent positive, are down from 65 percent last fall in this poll, produced for ABC by Langer Research Associates.

Most ominously, 60 percent see a recession as very or somewhat likely in the next year. That’s within sight of the 69 percent who said so in November 2007, one month before the onset of the Great Recession.

In another measure, Trump gets far more criticism than credit for his economic stewardship. Americans by nearly a 3-1 margin, 43-16 percent, say his trade and economic policies have increased rather than decreased the chance of a recession in the next year.

That must be the reason for such low inflation. Inflation fell earlier in the year and is running short of the Federal Reserve’s 2 percent target,” said MarketWatch, “but the decline in prices may be coming to an end. Some measures of inflation indicate prices could be creeping higher again and economists warn that higher tariffs on Chinese goods could feed into inflation also.”

Is that so? In fact, goods’ wholesale inflation was unchanged, indicating falling demand for manufactured goods that are mainly exported, whereas wholesale service prices overall rose 0.3 percent and were boosted by a 6.4 percent monthly jump in guestroom rental while goods prices fell 0.5 percent overall. Consumers are snapping up domestic purchases, in other words, with soaring retail sales during the approaching holiday season.

The cost of most goods and services are relatively stable, however, and that will give the Fed more room to cut interest rates if the central bank believes the economy needs a boost. The Fed is widely expected to reduce rates next week as an antidote of sorts to the damage caused by the trade war.

Harlan Green © 2019

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

About populareconomicsblog

Harlan Green is editor/publisher of PopularEconomics.com, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
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