Silver bullets may stave off recession

North Bay Nugget

Silver bullets and wooden stakes to use on the recession vampire?

With the U.S. election roughly a year away and U.S. President Donald Trump having claimed ownership of the U.S. economic engine and, by default, the U.S. stock market as a result of his policies, it is becoming increasingly clear in order for his re-election to occur the American economy must continue to perform over the upcoming year.

Let’s review some of his policies/actions. Deregulation has allowed American companies to operate in a business-friendly environment and cut out cost, bureaucracy and lead time which has translated into increased profits. A large corporate tax cut has stimulated business spending and somewhat smaller tax cuts for individuals has helped consumption spending in the U.S. which accounts for 70 per cent of all economic growth in the U.S.

Finally, interest rates have begun to head down again and though many question the efficacy of lower rates and their effect on a slowing economy at this point in the economic cycle, their downward direction will at the least not cause economic harm to borrowers, even if the lower rates fail to stimulate a somewhat tired consumer.

So what’s left? As the global economy slows and with it the U.S. Economy, there are still some silver bullets to stave off recession.

First is payroll tax cuts, or just an outright reduction in the individual tax rate for Americans.

Second is a broader infrastructure spending package that could be passed by congress.

Politically, these moves may be tough to accomplish for the Trump administration as they would require a Democratic congress to sign off on any new spending bills.

Then there is the trade war. At this point it is becoming apparent the trade war is something much more deep rooted than issues of trade between the U.S. and China. Many believe, myself included, there is a new cold war brewing between the two countries.

Nevertheless, any progress or agreement on this front (even if it is superficial) would have the effect of reducing uncertainty and fear and therefore allow for animal spirits to take hold and propel the economy and thus the stock market higher.

In any case the three options above are more about delaying than they are about preventing a recession. If enacted, they would postpone a recession until after the 2020 election (if Trump gets his way) and no doubt help his re-election hopes.

So are there silver bullets available to slay the recession vampire? I don’t think so, however there are potentially some wooden stakes at the ready to keep the vampire at bay, at least for a while.

Mike Candeloro, Vice President, Portfolio Manager and Wealth Advisor with RBC Dominion Securities and the head of The Mike Candeloro Wealth Management Group supplied this article. RBC Dominion Securities Inc. and Royal Bank of Canada are separate corporate entities, which are affiliated. Member CIPF. Mike can be reached at www.michaelcandeloro.com

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