Will April Economic Showers Bring a Summer Slump?
April is the cruelest month according to poet T.S. Eliot and this year it could bring the U.S. economy to a waste land of recession.
The month will be filled with quarterly earnings reports likely to disappoint investors and send Wall Street running for the hills. Already several companies have issued lower earnings guidance and the ongoing shell game of tariffs on/tariffs off has even the most seasoned financial observers shaking their heads. Add in declining consumer confidence and a softening labor market and you have a recipe for economic distress.
The first quarter is traditionally a period of uncertainty as the holiday spirit winds down and the cold reality of winter sets in. With a new administration in Washington getting its bearings and fueling uncertainty and volatility, the equities markets test the financial waters and wait to see which way the political winds are blowing. But not this year.
The whirlwind of executive orders, policy changes and dueling tariff threats, the global economy is looking more like a state of nature than a state of bliss. And that could be bad news for consumers and businesses alike.
In his seminal work “Leviathan,” English philosopher Thomas Hobbes wrote about the structure of society and is one of the earliest examples of social contract theory, an idea that people surrender some of their freedoms in exchange for protection of their rights.
In an economic sense, that means acceptance of norms and the rule of law to foster cooperation and competition. In our modern sense it includes financial regulations and oversight to ensure a level playing field for all and a check on corruption. But that social contract is getting frayed as nations exchange threats of trade retaliation and established partnerships are jettisoned in favor of protectionist policies.
In this burgeoning financial state of nature, consumers and business owners could find themselves living in a world where economic life is solitary, poor, nasty, brutish and short.
Free trade has been the hallmark of global economics since at least the 18th century with British political economist Adam Smith’s “Wealth of Nations,” where he argued for the benefits of free international trade. It has become a foundation of global prosperity and has opened markets around the world for American companies and consumers. But a return to economic isolationism would imperil those gains.
Whether or not the international economic system formalized at the end of World War II at the Bretton Woods Conference with the creation of an international monetary system designed to promote economic stability and cooperation with the International Monetary Fund and the World Bank continues is unclear.
The first hints of what may lie ahead will emerge as companies report quarterly earnings this month, culminating in the release of advance estimate first quarter gross domestic product numbers at the end of the month.
Until then, we can only wait and watch and hope a new leviathan sowing chaos does not emerge.
