Is The Economy Booming Or About To Bust?

SCOTT SIMON, HOST:

Are we booming or about to bust? This week, Apple cautioned investors not to expect strong sales because the Trump administration's trade war with China. And the Institute for Supply Management said that its measure of U.S. manufacturing took the steepest dive it's had in a decade. But then, yesterday's upbeat employment report said that U.S. employers added 319,000 jobs in December; analysts were expecting 180,000. So what's the panic? We're joined now by Megan Greene. She's the chief global economist at Manulife Asset Management. Thanks so much for being with us.

MEGAN GREENE: Thanks for having me.

SIMON: Do you think the U.S. economy is basically healthy?

GREENE: So the U.S. economy is in pretty good shape. The economic fundamentals look decent, even though we've had a couple of bad news headlines recently. So the ISM survey data came in much weaker than expected but still reflected an expansion in terms of manufacturing and manufacturers' expectations for output, employment and new orders - so still in growth territory. We grew well above potential growth last year, and potential growth is around 2 percent. So I do think we can expect a slowdown this year. But, again, it's a slowdown from really high levels, so I think we'll still have growth of somewhere between 2 and 2 1/2 percent for 2019. That's hardly bad news for a developed economy.

The confidence in the U.S. continues to hit postcrisis highs every month. So when you ask consumers and businesses how they're feeling about things, they say they're feeling great about the economy. When you look at how they're actually spending their money, though, the data is not quite as ebullient. So it's not quite as boomy. So if you look at retail sales to measure the health of the consumer, for example, consumers are saying they feel great, but they're not actually spending that much. It's still in growth territory, but it's not what you would expect based on how they're reporting they're feeling. You might have seen a lot of pessimism in the markets recently. And I don't think that that's an economic story for the U.S. at all. I don't think that it's justified based on the U.S.' macroeconomic fundamentals.

SIMON: Well, why the pessimism then?

GREENE: One thing that I do think is really driving the markets is what's happening in China as well. So Chinese data has come out and has been unequivocally awful, I would say. So retail sales growth has been really weak in China. Their survey data suggests that demand in China and abroad has been much weaker. You know, it's justifiable for the markets to worry a bit about that. If China were to slow down, that doesn't mean that the U.S. is going to go into recession, though, unless China had a really surprise hard landing now. And until very recently, the markets have been worried about the Fed killing off this recovery. And I think that's a fair concern generally. They say that, you know, recoveries don't die of old age, they're murdered, and usually the Fed is the key suspect. But recently, the Fed has revised its path for normalizing rates downward so that it's more dovish, more gradual. I don't think that we'll end up seeing the Fed kill off this recovery, but the markets have been really worried about it recently.

SIMON: What features of the economy do you look at?

GREENE: So if you're looking for forward-looking data - because most economic data is actually backwards-looking, particularly labor market data - if you look at the survey data, it will give you an indication of new orders, both domestic and foreign. And that's a great indicator of the strength of manufacturing and services. And the two ways to fundamentally boost your potential growth or productivity growth and your labor supply - and in terms of productivity growth, the way to boost it is with more investment, more capital expenditure. And this has really been an investment less recovery. But if we saw a boom in investment, that would certainly change most people's views on things. So I would keep an eye on that. And the labor supply is effected a lot by immigration policies, so I would keep an eye on that as well.

SIMON: Megan Greene with Manulife Asset Management, thanks so much for being with us.

GREENE: Thanks for having me.

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