Over the past two weeks, Donald Trump has learned the perils of taking credit for a stock boom. Earlier today, the Dow Jones Industrial Average once again plunged by several hundred points. The political significance of the recent market drop is that President Trump will no longer — or, at least, should no longer — cite the Dow as evidence that his policies are working.
But what’s the economic significance?
Writing in the Wall Street Journal, investment strategist Jason DeSena Trennert says the present volatility is no cause for alarm: “While free markets can be unsettling, it is difficult to find a lot wrong with the economy today. Consumer spending, capital investment, and government expenditures are rising or likely to rise while a weaker dollar should help offset the trade deficit. These expectations for stronger economic growth are being reflected in long-term interest rates and are currently nothing to fear. Inflationary pressures are likely to build, and the Fed has started the long-awaited process of ‘normalizing’ short-term interest rates.”
Likewise, New York Times economics correspondent Neil Irwin notes that, despite the turmoil in financial markets, “many of the real-time indicators that tend to work as early warnings of an economic slump are looking just fine.”
For example, “The Conference Board’s index of leading economic indicators ticked up in its most recent release,” and “the Institute for Supply Management said its index of activity at service companies rose sharply in January.”
Meanwhile, on Thursday morning, the U.S. Labor Department reported that the four-week moving average of unemployment-insurance claims had fallen to its lowest level since 1973.
All of which should make us guardedly optimistic about where the U.S. economy is headed.
For a much more pessimistic view of the stock-market decline, read former IMF and Salomon Smith Barney economist Desmond Lachman, who fears that “we could well be on the verge of another global financial crisis.”