On Thursday, the Commerce Department reported that the U.S. economy’s rate of growth slowed to an annual rate of 2.2 percent in the last quarter of 2018. This is below the 3.4 percent growth we achieved in the third quarter.
The Federal Reserve had indicated previously that the slowing U.S. and global economy forced a change of their policies. The Fed is now unlikely to raise interest rates until 2020 at the earliest. President Trump even wants the Fed to cut interest rates. The president of the Dallas Fed, Robert Kaplan, noted that a $5.7 trillion borrowing binge by U.S. companies could make a slowdown more painful if rates rise. Kaplan also said, “Inflation is not running away from us. I think we are wise to take a very patient approach.”
Economists believe that our economic outlook remains healthy. They expect gross domestic product, which measures the nation’s production output, to slow to 2.1 percent in 2019. Unemployment might average 3.7 percent. Lastly, we are experiencing moderate inflation. In brief, we are benefiting from a Goldilocks economy.
Where do I see problems?
The outlook in the Eurozone is troubling. Consumer confidence in the EU 27 plummeted in March to the lowest levels since 2016. Because of Brexit uncertainties, UK consumer confidence plunged to the lowest levels since November 2013.
Mario Draghi, the European Central Bank president, confirmed his deep concerns about the Eurozone’s economic risks. Draghi said, “Risks remain to the downside.” Currently, overnight rates in the Eurozone are minus 0.4 percent — a record low. Nations including Italy and Germany have triggered worries. Italy slipped into a recession at the end of 2018. Germany anticipates only a 1 percent growth rate in 2019. In 2018 the German economy grew only 1.5 percent, the weakest in five years.
On Thursday, in an interview on CNBC between Warren Buffett and Betsy Quick, Buffett noted that the operational results of Burlington Northern, a major railroad owned by Berkshire Hathaway. He suggested that the numbers indicated that our economic growth slowed even further in the first quarter of 2019.
In their dialogue Buffett made five comments that caught my attention. First of all, he emphasized that lower interest rates, all things being equal, makes the stock market more attractive. Secondly, the slowdown was partly attributable to concerns about a trade war with China. Thirdly, Buffett is a strong advocate of free trade because it allows American consumers to pay less for goods. Fourthly, he explicitly commented that the slowdown in China and the Eurozone negatively impacts America given we live in a global economy. Lastly, the Burlington Northern numbers indicated that we are experiencing slower growth, not a recession.
One of the major positives from listening to Buffett is that he brings perspective. Buffett, who is 88, mentioned that an inherent quality of capitalism is the inevitably of recessions. He laughingly commented that he has lived through six to eight recessions and hopes to live though many more.
Buffett remains a strident defender of capitalism. He commented, “The American free enterprise model is a very powerful economic engine. We kind of tend to power through.”
In February, Buffett responded to the following question: “Is the United States a country in decline, its best days behind it?” Buffett responded, “Don’t bet on it!”
Buffett criticized extremists on both sides. To those on the left, he reminded them: “The U.S. is a capitalist country.” To those on the right, he said: “We don’t need to make America great again — America is already a great country.”
I will be celebrating my 75th birthday very soon. While I might not like economic downturns, I also hope to live through many more recessions.
Originally published in the Sarasota Herald-Tribune
