It is no longer a question of whether we’re heading into a recession or not.  We are!  The important question is whether it is a bad recession or merely a slowdown, which is known as a “growth recession.”

GDP growth has slowed from 3.1% in the first quarter to 2.0% in the second.  Business spending has dropped 5.5%, the biggest drop in five years.  Small business confidence is the lowest in seven years.  Freight shipments have dropped markedly for three straight months.  The PMI manufacturing index turned below 50, which means contraction.  The all-important business earnings has been dropping but is still quite positive, up 2.4% over last year.  Gold is up 20%, while cooper is down 13%.  (The joke is that cooper is often called Dr. Cooper and is the world’s best economist.)

Yes, there is substantial good economic data, such as consumer spending, and I think it is enough to limit the downturn to a mere slowdown.  There is an old saying on Wall Street that bull markets never die of old age.  They get killed either by the Fed or by some policy mistake.  In a world of negative interest rates, the Fed is more likely to decrease interest rates than increase them.  The trade war may be the major policy mistake.

I am concerned the President will foresee running for re-election during a recession and start looking for someone to blame.  Certainly, he will blame the Fed, and he could also announce some economic stimulus program, with ever bigger deficits.  When Congress fails to approve that, they will become another fall-guy.  Of course, China will also be a fall-guy.

One additional policy mistake could push us out of a slowdown and into a real recession.