Is the presidential honeymoon over?
It was one of Donald Trump’s most prominent pre-election pledges, so when the much-vaunted repeal of Obamacare failed to secure the support it needed in Congress, Wall Street signalled its disapproval via a massive share dump, bringing the stock market’s seemingly unstoppable rise to a screeching halt.
If the stellar performance of the S&P over the past few months demonstrated a level of confidence in the ability of the new president to deliver on his promises, this abrupt volte-face is a reflection of a more sombre mood. Tumbling US shares prefaced similar dips in Tokyo, Frankfurt, Paris and London as global markets wobbled over the prospect of the Trump administration’s ability to deliver on a raft of growth-boosting measures.
Emerging from the doldrums
The pace of US growth recovered sharply in the third quarter, peaking at its highest rate in two years and lending credence to forecasts that the country is on track for greater economic stability as 2016 draws to a close.
The economy expanded at a 2.9 percent annualised rate in the third quarter, up from 1.4 percent in the second quarter, which topped predictions of a more modest rate of 2.6 percent and reflected a spike in exports as well as an increase in federal spending, according to the US Commerce Department.
That said, consumption growth – another key indicator of the health of the economy – dropped back over the same period to just 2.1 percent, down from more than double that figure in the previous quarter, and falling a long way short of the expected 2.6 percent benchmark.
Credit tightening – a sign of the times?
For a society that runs largely on credit, when loans start drying up, the wheels of commerce grind to a shuddering halt.
In a survey recently conducted by the Federal Reserve, signs are emerging that lines of credit are being increasingly squeezed, with loans to businesses on commercial and industrial (C&I) and commercial real estate (CRE) being subject to tougher standards over the second quarter of 2016 than in the past three quarters.
Businesses looking for C&I loans to buy new equipment or relocate are finding it harder to access the credit they need as banks continue to tighten their criteria for lending, especially for medium- and large-sized companies.
Rates on hold
The announcement by the Federal Open Market Committee (FOMC) to hold US interest rates steady in July came as no surprise to market analysts who had felt that the threat of economic uncertainty and the imminent presidential election would prevent the Federal Reserve from making any hasty decisions to hike the rate in the short term.
A fresh rate hike on the horizon?
It’s thought that the Federal Reserve will signpost more interest rate hikes this year, six months after it increased rates for the first time in almost ten years.
In their April meeting, Fed members voted overwhelmingly to keep interest rates unchanged amid concerns about the sluggish growth of US economy in the first quarter, Britain’s potential exit from the EU and uncertainty over China. After the Fed raised rates in December, it was expected to repeat the process four times this year, a forecast which has since been adjusted to two hikes.
Recovery is slowing
New figures released by the Commerce Department show that the US economy slowed to a virtual halt in the final three months of 2015, its annual rate rising at just 0.7% amid signs of a global economic slowdown. Consumers and businesses alike scaled back their spending and US exports were reduced. The lower-than-expected rate is likely to fuel concern that gains made over the last six years are now losing ground.