Cape Town - Blackrock's Larry Fink recently warned “that US growth is slowing on concern whether the Trump administration’s agenda will get through Congress”, while JP Morgan’s Jamie Dimon noted that “it is clear that something is wrong” with the US economy in a letter to investors. Both chief executives are part of a group of business leaders that advise President Donald Trump.
Fink was concerned over the pace of changes so far under the new administration after the Republicans, which control both houses of Congress, failed to replace the last administration’s health-care plan, “Obamacare” with a new health-care plan “Trumpcare.”
He told CNBC that the US economy is slowing as both consumers and businesses wait to see if the new administration can deliver on tax reform and deregulation following the failure of the health-care bill in March.
In January and February, US real personal spending had monthly declines, the first time there have been consecutive monthly declines since the recession year of 2009. Another decline is likely in March as light vehicle sales fell by 5.5 percent from February, while March non-farm payrolls only grew by 98000 compared with a consensus forecast of 180000 after a 219000 gain in February.
“There’s a greater worry that these proposed changes are going to be harder and harder to execute,” said Fink, speaking on CNBC last week. "You’re seeing a slowing down of our economy.” Fink said the US is probably the slowest-growing economy in the first quarter among the major G-7 developed economies.
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Japan, Canada and Europe are expanding faster than anticipated six months ago while the US is lagging expectations. Without tax reform and deregulation, he said, the markets will suffer setbacks.
The US equity markets have rallied to record highs on hopes that the Trump legislative agenda of lower corporate taxes, less red tape and a pro-business bias would lead to stronger growth and “Make America Great Again.”
Fink, the head of the world’s largest asset manager, said the most crowded trade right now is that rates are going to move much higher due to higher inflation. Instead, he said, there’s a 51 percent chance that 10-year Treasuries drop below 2 percent. US inflation has risen to 2.7 percent year-on-year (y/y) in February from only 0.8 percent y/y in July.
The US Federal Reserve raised interest rates in December and March, yet the US-10-year Treasury yield has traded in a band between 2.62 percent and 2.30 percent since mid-December after trading at only 1.81 percent on Election Day, November 8, 2016. On Friday, April 7, the yield closed at 2.38 percent.