Nov 2, 2018

Axios AM

By Mike Allen
Mike Allen

☕️ Happy Friday!

1 big thing: New signs the booming economy could slide into recession

Illustration: Rebecca Zisser/Axios

Cracks are beginning to show in a booming economy that's on pace for a 10th year of continuous growth, Axios markets reporter Courtenay Brown writes.

  • Why it matters: There's plenty of good news — economists expect today's jobs report to show unemployment holding at a stunning 49-year low, for instance. (Current Reuters headline: "U.S. job growth seen accelerating; strong annual wage gain expected.") But look closer, and visible threats suggest an all-out recession could come as soon as next year.

Key economic indicators are flashing red:

  • Worker productivity is sluggish. The third quarter marked the "32nd straight quarter of yearly growth below 2%, a long and consistent stretch of anemic growth that hasn’t happened before in the post-World War II era," the WSJ reports.
  • Manufacturing activity has stalled for the first time in two years, possibly the result of President Trump's multi-front trade war.
  • Business investment is laggardly. Rather than using their $1.2 trillion tax cut on capital spending, companies are on track for the biggest-ever year of stock buybacks, possibly reaching $1 trillion.

And U.S. economic growth is already slowing:

  • In the third quarter, GDP growth retreated to a 3.5% annual rate, down from 4.2% the prior quarter. Going forward, economists expect growth to hit 2.9% in the fourth quarter, and 2.5% in the first quarter of 2019.

Forecasts are all over the map — but recession is a common theme.

  • Megan Greene, chief economist at Manulife Asset Management, expects a recession after 2021.
  • Mark Yusko, founder of hedge fund Morgan Creek Capital, forecasts recession next year, and puts the odds at 100% — thanks to trade tensions.
  • “The trade rhetoric is one of the dumbest things in the history of all administrations and it will cause a global recession,” Yusko told a recent investment conference.

Another concern is the Fed's series of interest rate hikes, which are pushing up prices and are a leading indicator of recession:

  • According to Greene, the U.S. has slipped into recession during 10 out of the last 13 rate-hiking cycles.
  • The Fed has signaled that it will keep raising rates to keep inflation in check. That's bad news if you're a big corporation hoping to borrow on the cheap.
  • Prices for everything from rolled aluminum to cookies are on the rise, per The Wall Street Journal, after years of low inflation. “History is not on our side,” Greene said.

Among the experts forecasting a continuing slowdown going into 2020: the IMF, and Ben Bernanke and Janet Yellen, both former Fed heads.

The White House says it has no plans to revise its GDP forecast of 3.5% this year and a bit above 3% in 2019.

  • Kevin Hassett, chair of Trump's Council of Economic Advisers, told Axios that capital investment has rebounded since Trump's election, and that it will sustain growth. (In the third quarter, business investment growth slowed to 0.8% from 8.5% in the second quarter, and 11.5% in the prior quarter.)
  • Hassett told us: "It's not a 'sugar high' because when [companies] buy lots of capital goods, then it goes into GDP when it's investment, and then increases GDP when you turn the machines on and produce output."

Be smart: Growth is still healthy, but the economy is unquestionably slowing.

2. Article of the day
Illustration: Axios Visuals

Beware of the polls in "a volatile environment where Trump has saturated every inch of our cultural fabric with politics," Snapchat's Peter Hamby writes for Vanity Fair's "Hive":

  • "Electorates mutate every two years. They get older, they get younger, they get browner, they get whiter, they get smaller, they get bigger. They respond to new candidates and shifting issue sets."
  • "[P]olls are not predictive. They are wobbly around the margins. Pollsters, the honest ones at least, know this and repeat the warning over and over again. Yet even the shock of 2016 hasn’t stopped people in the media from making predictions about next Tuesday. "
  • "Journalists, at least on their Twitter accounts, have started to write off certain Senate races."

Why it matters: "Using past turnout patterns can be useful when modeling a universe of voters, but the polls cannot tell us with certainty what will happen on Election Day anymore."

3. The Dr. Seuss election?
Trump in Columbia, Mo., last night (Scott Olson/Getty Images)

Here's how President Trump, who takes pride in his branding, boiled down the midterms during his rally in Columbia, Mo. last night (peppered with "TIGERS FOR TRUMP" signs, in University of Missouri black and gold):

  • "This election is a choice between Republican results and radical resistance. It's a choice between greatness and gridlock. It's a choice between jobs and mobs. And it's a choice between an economy that is going strong — and the Democrats, who are going crazy." [Gleeful cheering.]

Jonathan Swan's thought bubble: Trump always paints groups of people — countries, companies, whatever he’s talking about — in black and white. He will blithely write off an entire group of people as "the worst" or "the enemy" or a threat to the country.

  • As he all but acknowledged to Swan and Jim VandeHei in an interview for "Axios on HBO," Trump is deliberately divisive because his crowds demand it — and he thinks it works for him politically. 
Courtesy N.Y. Post
4. Pic du jour

Spencer Platt/Getty Images

A child sleeps as members of the Central American caravan settle in for the night in an abandoned motel in Matias Romero Avendando, Mexico.

5. Real-life walkout at online giant

Clockwise from top left: Google's European headquarters in Dublin (Niall Carson/PA via AP); home base in Mountain View, Calif. (Noah Berger/AP); London (Tolga Akmen/AFP); New York (Bryan R. Smith/AFP)

"Thousands of Google workers walked out of offices around the world to protest how the tech giant has handled sexual misconduct by some of its top executives," per Bloomberg.

  • "Starting in Asia and spreading across Europe, photos posted with the hashtag Googlewalkout began flooding Twitter as employees gathered outside Google offices in Zurich, Dublin, Singapore, London and Hyderabad, India."
  • Then New York and Atlanta, and finally its headquarters in Mountain View, Calif.
  • The employee group, Google Walkout For Real Change, said 47 offices participated.
6. House Dems get ready
Congressional Black Caucus

"The Congressional Black Caucus served notice Thursday that the influential group wants a black lawmaker to hold at least one of the House's two top Democratic jobs next year if Nancy Pelosi or other party leaders don't retain their posts in the new Congress," AP's Alan Fram writes.

  • "Caucus Chairman Rep. Cedric Richmond, D-La., wrote colleagues that despite the party's 'celebration of diversity,' a black lawmaker has never held one of the two top jobs. 'It's time we walk our talk.'"
  • Why it matters: "The effort is an example of behind-the-scenes jockeying already under way to fill the party's top jobs in the Congress that convenes in January."

Be smart ... Most likely outcome: Nancy Pelosi, Steny Hoyer and Jim Clyburn each move up — to Speaker, Majority Leader, Majority Whip.

  • Rep. Barbara Lee of California has the edge in the race to be caucus chair, so there could be two CBC members at the very top of leadership.
7. "Sharpie therapy"

Low-tech campaigning: "Quaint vs. quant" ... "In the big data era of politics, where campaigns are betting millions on software that can harvest hundreds of pieces of information about a single voter," a Democrat-led group called Postcards for Voters has mobilized 40,000 volunteers and sent 1.5 million handwritten postcards since September, the N.Y Times' Mike Tackett reports.

  • "This week, the group aims to send postcards to every registered Democrat in North Dakota to try to win the re-election of Senator Heidi Heitkamp."
  • "We called it Sharpie therapy," said Ellen Bender, who has convened multiple postcard-writing sessions at a Le Pain Quotidien on the Upper East Side. "Instead of throwing the remote at the TV, we would write postcards."
8. How they see us
Courtesy The Economist

The Economist's lead editorial takes on "America divided":

  • "Toxic federal politics is America’s great weakness. It prevents action on pressing real issues, from immigration to welfare; it erodes Americans’ faith in their government and its institutions; and it dims the beacon of American democracy abroad."
  • "The mid-term elections are a chance to begin stopping the rot—and even to start the arduous task of putting it right."
  • "For Democrats to win control of the House would, in the long run, benefit both parties. Defeat would encourage some Republicans to start putting forward a conservative alternative to Trumpism."
9. "Troika of tyranny": Trump's "axis of evil" for Latin America

"President Trump is going on the offensive against the oppressive regimes in Venezuela, Cuba and Nicaragua — and he sees Brazilian president-elect Jair Bolsonaro as an ally in that quest, national security adviser John Bolton said in a speech [yesterday] in Miami," Axios World editor Dave Lawler writes.

  • "Bolton ... outlined a muscular Latin America strategy that seeks to isolate and punish leftist governments in Venezuela, Cuba and Nicaragua — which he branded a 'troika of tyranny' and a 'triangle of terror' — while embracing right-wing leaders in Colombia, Chile and soon Brazil." (L.A. Times)
10. 1 secret thing

Secret shopper scores shape customer service ... "Companies size up their customers by using data to generate a score, called customer lifetime value," The Wall Street Journal's Khadeeja Safdar reports (subscription):

  • "Two people call customer service at the same time to complain about the same thing. One waits a few seconds before a representative gets on the line. The other stays on hold."
  • "There’s a good chance [the difference] has something to do with a rating known as a customer lifetime value, or CLV. That secret number is used by all manner of companies to measure the potential financial value of their customers."

Why it matters: "Your score can determine the prices you pay, the products and ads you see and the perks you receive."

  • "Credit-card companies use the scoring systems to decide what to offer customers who want to cancel their cards. Wireless carriers route high-value callers immediately to their most skilled agents. At some airlines, a high score increases the odds of a seat upgrade."
Mike Allen