Trump plays down fears of US recession

US President Donald Trump speaks during a "Keep America Great" campaign rally at the SNHU Arena in Manchester, New Hampshire, on August 15, 2019
Image copyrightGETTY IMAGES

Donald Trump has tried to reassure markets about the risk of the US falling into a recession by saying the economy is doing “tremendously well”.

The US president said he did not see a recession – usually defined as when an economy shrinks for two consecutive quarters.

White House economic adviser Larry Kudlow also said there was “no recession in sight”.

Last week, financial markets indicated a recession could be on the way.

This is because it became cheaper for the US government to borrow for 10 years, rather than two.

This “inverted yield curve” often comes before a recession, or at least a significant slowdown in economic growth.

However, speaking to reporters on Sunday, Mr Trump said: “I don’t see a recession. The world is in recession right now.

“I don’t think we’re having a recession. We’re doing tremendously well, our consumers are rich, I gave a tremendous tax cut, and they’re loaded up with money”.

He pointed to last week’s healthy profits from Walmart, the US retailer often described as the world’s biggest, and pointed to a strong performance from US consumers.

“Most economists actually say we are not going to have a recession. Most of them are saying we will not have a recession, but the rest of the world is not doing well like we are doing.”

‘No recession in sight’

His remarks came after Mr Kudlow had told Fox News Sunday that the US economy remained “in pretty good shape”.

“There is no recession in sight,” Mr Kudlow said. “Consumers are working. Their wages are rising. They are spending and they are saving.”

Markets around the world were rattled last week by the movement in the bond markets, which also knocked stock markets.

On Wednesday last week, US stock markets fell by about 3% when the yield curve inverted, although they had recovered lost ground by the end of the week.

Last month, the US Federal Reserve cut interest rates for the first time since 2008 , and more cuts are expected. Janus Henderson’s Laura Foll told the BBC’s Today Programme that the US central bank was “responding to global events” such as the contraction in both the UK and German economies during the second quarter.

The US economy also slowed last quarter, growing by 0.5% – its weakest performance in more than two years.

The US President has published about 40 tweets either criticising Fed chairman Jerome Powell or pushing for a rate cut.

“Of course, it is really hard to know how much of an effect Trump is having,” Ms Foll said.

When Roger Klug told his employer he was retiring, there was a shiver of panic among the bosses. Now 70 years old, Mr Klug is in his 47th year at Alexandria Industries, an aluminium company in rural Minnesota.

After almost five decades manufacturing industrial products for such diverse industries as solar power and defence, the company could ill-afford to lose Mr Klug’s expertise.

Like a number of US states, Minnesota has a labour shortage – specifically a skills shortage – and seeing his valuable experience disappear overnight would have left Alexandria’s management with big shoes to fill.

According to the US Department of Labor, since March 2018 US monthly job vacancies have outnumbered unemployed job seekers. As the baby boomers reach retirement, it seems there are not enough millennials in the jobs pipeline ready to step in.

“We have a labour shortage and it’s going to be a problem for the next couple of decades as the boomers leave the workforce,” says Mark Zandi, chief economist at Moody’s Analytics.

So, one answer for companies struggling to find staff is to ask workers like Mr Klug to put off retirement. He did.

Roger Klug
Roger Klug is passing on his knowledge to a new generation of workers

“I only work two days a week, and I wanted to do something after I retired and it was just a no-brainer to stay. It’s not about the money. I enjoy the work,” he says.

Mr Klug still turns out high precision parts at Alexandria, and also fills in on other jobs at the company when necessary. But a key role is to pass on his skills to a new generation of staff at the company. It’s a trade-off that suits both sides. Mr Klug gets to stay active; Alexandria Industries gets valuable training for new workers.

It does mean, though, that companies have to incentivise their mature employees through flexible hours, healthcare benefits, and keeping wages competitive.

“Our biggest challenge is the ability to staff the organisation so we can grow the business,” says Lynette Kluver, Alexandria Industry’s director of organisational development.

Lynette Kluver
Image captionLack of skilled staff could hold back expansion, says Alexandria Industries’ Lynette Kluver

But it’s not just the skills shortage that has extended the job prospects for ageing workers. Some employers seem to prefer them.

At Johnson & Sons, a florist in Saint Paul, Minnesota, Tom Johnson employs people ranging from ages 16 to 86.

He has nothing but praise for the older workers, even running job adverts targeted at the baby boomer generation. For a start, Mr Johnson says, older employees are more reliable.

“They don’t have kids to take care of or hectic social lives,” he says. And his elderly new recruits bring with them valuable experience from other fields.

Johnson & Sons’ oldest employee is Tom Slagerman, who does a variety of maintenance roles and helps wrap the flower bouquets. Aged 86, he used to own a print shop, but could not continue after suffering cancer.

Mr Slagerman said it took four to five years for him to feel well enough to return to work. His wife thought he was crazy for applying for a job at his age. But the work is fun and “keeps me active”.

He and Mr Klug are far from unique. The US Bureau of Labor Statistics (BLS) estimates people aged 55 and older are expected to have the fastest growing labour force participation rate – that is, in work or actively seeking work – over the next five years. And within this age group, those aged 65 and above are expected to see the fastest expansion.

But despite the growth in opportunities for older workers, it’s not just about “staying active” or companies’ wanting to retain skills. Regardless of the expanding US economy, the reality is that many baby boomers who wish to retire simply cannot afford to.

Andreé Flageolle
Like a lot of elderly people, Andreé Flageolle continues to work because she needs the mony

Andreé Flageolle, 74, another elderly Johnson & Sons employee loves the job, but admits that she’s there because she needs the money.

Ms Flageolle, a nurse for many years, says her social security payment is enough to cover her rent, but leaves her little to pay for utilities and other monthly expenses.

She supplements her income with another part time job, at a company helping the elderly to remain independent and stay in their homes.

Still, the jobs are a labour of love, and Ms Flageolle particularly likes being around the younger workers at Johnson & Sons.

“I think that the mix really energises things and keeps you on your toes. Plus, I’ve found they teach me things, and I teach them. So, it’s reciprocal,” she said.

And that touches on another benefit of keeping elderly people in the workforce. “We know that multiple generations working together can lead to more creative thinking and innovation”, says Cal Halvorsen, assistant professor at the Boston College School of Social Work.

Protesters hold placards and shout slogans as they take part in a rally on a street on July 7, 2019 in Hong Kong
Image copyrightGETTY IMAGES
Image captionThe business community in Hong Kong fears a stand-off between protesters and the Hong Kong government

The leader of Hong Kong, Carrie Lam, said this week that a controversial extradition bill was “dead”.

The comments provided much relief for businesses concerned about the fall-out from proposed changes to allow for extraditions to mainland China.

They had worried these changes would hurt the very autonomy that has made Hong Kong into one of Asia’s most important financial hubs.

But protesters remain unconvinced and want to see the extradition bill formally withdrawn.

A stand-off between the government and protesters is thus likely to continue, posing a fresh risk to Hong Kong’s international reputation as an attractive place to do business.

“There’s an eerie sense that the government and protesters have a large space between them,” Tara Joseph, president of the American Chamber of Commerce in Hong Kong, told me.

“The local economy is feeling the pinch of the US-China trade war – protests are an extra layer. It’s really important that there’s some conclusion to this.”

Indeed, there are already signs that people are getting nervous in Asia’s oldest financial hub.

People, money exodus?

Anecdotal evidence shows that the wealthy in Hong Kong are already considering their options.

“I’ve definitely seen a spike in inquiries from high-net-worth individuals in Hong Kong looking to secure residency rights or citizenship elsewhere in the world,” David Lesperance, an immigration lawyer, told me.

Mr Lesperance says those high-net-worth individuals in Hong Kong had been worried for some time.

But the recent controversy surrounding the extradition bill, and the subsequent protests and storming of the legislative council, have really prompted action, he said.

“People will be strengthening up their back-up plans with the acquisition of citizenship, either by investment or naturalization,” Mr Lesperance says.

“I can confirm this is definitely happening.”

Luxury fashion store on Russell Street in the Causeway Bay shopping district
Image copyrightGETTY IMAGES
Image captionA row over an extradition bill has the wealthy in Hong Kong considering their options

Private banking clients are also making inquiries about moving accounts to Singapore and some private bankers told me a record number are already doing so.

Others, however, say only a small percentage of their clients are worried.

Some in the business community say the risk premium of operating in Hong Kong has also already gone up.

Some companies are reportedly actively exploring moving their headquarters elsewhere, they say, although there is no official evidence of that yet.

Extradition bill

Given that the bill is just “dead” and has not yet been formally withdrawn, experts expect protests to continue.

Marches are already being planned for the coming weeks and protesters say they will not stop until all their demands are met.

But lawyers are confident the controversial extradition bill will never see the light of day.

“It seems to be about saving face for Carrie Lam and avoiding being seen to give in to protesters’ demands. That’s why she didn’t use the word ‘withdraw’,” says Antony Dapiran, a Hong Kong-based lawyer and author of the book City of Protest.

“There’s no secret plan to reintroduce the bill. Not least because the pro-Beijing political parties who technically need to pass it in parliament are extremely annoyed by what’s happened. There’s no political will to push this through.”

Bad for business

Still, the street protests are expected to continue and these are already having an impact on business in the city.

“Tourism is down 5-10% so far [since the protests began],” Allan Zeman, a Hong Kong businessman and founder of Hong Kong’s popular nightlife district Lan Kwai Fong, told me.

“Retail is down, many of the retail shops where protesters have been had to close down. Business is destabilized.”

Protesters carry umbrellas during a march to the West Kowloon rail terminus against the proposed extradition bill and before a clash with police in the Mong Kok district in Kowloon in Hong Kong on July 7, 2019
Image copyrightGETTY IMAGES
Image captionTourism is down since the protests began, according to a local businessman

But the long-term fall-out could be limited.

Previous, similarly big protests had no major lasting impact on the economy, said Mr Zeman.

“We had Occupy Central for 79 days in Hong Kong and this city recovered and bounced back,” he told me.

“What this is really about is social problems – housing and how to bring prices down. If your life is good, then you will love the government and China. If your rent is high, you will go to the streets.”

Looming 2047 threat

Hong Kong’s economic survival depends on it being independent and autonomous from China – a predicament Mr Zeman says China is well aware of and would not be willing to risk.

But many in the business community have told me that its relevance and economic future also hinges on it being the gateway to the mainland – a tricky balance to strike particularly for a population increasingly concerned about freedom.

“I have to grow old here, raise my kids here. And China’s influence is becoming stronger all the time,” Naomi Ho, a 25 year old activist, told me. “2047 is just around the corner. If we do nothing now, Hong Kong might as well be another city in China.”

That’s the year when Hong Kong’s Basic Law ends, and what happens to the territory’s special status under the “one country, two systems” principle is unclear.

Under the Basic Law, which has been in place since the UK handed Hong Kong back to China in 1997, Hong Kongers are guaranteed a level of autonomy and freedoms that mainland Chinese don’t have. An independent judiciary, for instance, and the right to protest are among them.

The international community is also taking note.

In a report in 2018, the European Commission said Hong Kong’s “one country, two systems” principle was the cornerstone of the territory’s economic success and that it had “legitimate concerns about whether Hong Kong’s high degree of autonomy and its attractiveness as an international business center will continue to be upheld in the long term”.

One of the glaring realities this current political impasse has brought home is just how close 2047 is.

For many of the young people protesting out in the streets that I met in Hong Kong though, the threat of China’s increasing influence is just too great a risk to ignore.

And therein lies Hong Kong’s conundrum. It needs to balance China’s economic presence with the demands and desires of its youth – who see no economic future in accepting more control from Beijing.