Orange County, California Correspondent

The stock market set a record this week, the unemployment rate is at a fifty-year low, and the Federal Reserve has just cut interest rates three times in four months, and I want to begin by pointing out that those three facts do not belong in the same sentence. A central bank does not cut rates into a record stock market and a three-and-a-half percent unemployment rate unless it sees something the headline numbers do not show, and what it sees is in the other half of the data: a manufacturing sector that has contracted for three straight months, business investment that has fallen for two quarters, a yield curve that inverted in August for the first time since 2007, a repo market that seized up in September badly enough to send overnight rates to ten percent and force the Fed back into expanding its balance sheet, and a global economy that the IMF now expects to grow at its slowest pace since the financial crisis. I analyze commercial real estate, which means I spend my days deciding whether the rent roll or the macro tells the truth, and this year they are telling different stories, and the question of resilience is the question of which one wins.

Let me take the case for resilience first, because it is real and it is the case the market is making. The American consumer is seventy percent of the economy and the consumer is fine: employment is high, wages are growing at a bit over three percent, household debt service is near a record low relative to income, gasoline is cheap, and retail sales have held up through every month of the trade war. The housing market, which I watch most closely, has responded to the rate cuts exactly as it should; mortgage rates fell below four percent this summer, refinancing surged, and the builders in the Inland Empire who were sitting on lots in the spring are pulling permits again. The services sector, which is most of employment, is still expanding. A recession in the United States requires the consumer to stop, and nothing in the data says the consumer is stopping. That is the bull case, and the market has priced it, and the market has been right about this expansion for ten years against a great many people who said it was ending.

Now the case against, which is the case the Fed is making with its actions rather than its words. Manufacturing is in recession; the ISM index has been below fifty since August and hit its lowest level since 2009 in September, and the causes are the trade war, the strong dollar, the Boeing grounding, and a global slowdown in capital goods that has hit Germany and Japan and Korea as hard as it has hit the Midwest. Business investment has fallen for two quarters because executives who do not know what tariffs will apply in December do not build plants in November. The yield curve inverted because bond investors expected the Fed to cut, and the Fed cut, which un-inverted the curve and proved the investors right, and a central bank that has to cut into full employment to keep the curve from signaling recession is a central bank that has very little room left. The policy rate is now between one and a half and one and three quarters percent. In the last two recessions the Fed cut by five percentage points. It does not have five. It has one and a half, and then it is back to the tools it used in 2009, with a balance sheet it has already started expanding again because the plumbing of the money market broke in September for reasons it has not fully explained.

The global side is weaker than the domestic one and I think underweighted in the American conversation. Germany avoided a technical recession yesterday by one tenth of a percent. China is growing at its slowest rate in nearly thirty years and its growth number is, by common consent, generous. The trade war has produced a framework announced on October 11 that has not been signed, that leaves tariffs on two hundred and fifty billion dollars of Chinese goods in place, and that has another hundred and fifty-six billion scheduled for December 15 unless the signing happens first. Every multinational I follow has reorganized its supply chain around the assumption that the tariffs are permanent, and that reorganization is a one-time cost that has been paid and is now showing up as the investment slump. The world economy is not resilient. It is being carried by the American consumer, who is being carried by the American labor market, which is being carried by a services sector that has not yet felt what manufacturing has felt. That is a chain, and chains are only as resilient as their last link.

So what is my assessment? I think the United States enters 2020 with a consumer strong enough to carry it through a manufacturing recession, which is what it has been doing since summer, and with a central bank that has used most of its ordinary ammunition to buy that outcome. The world enters 2020 slower than at any time since 2009, with China decelerating, Europe flat, and the trade war paused rather than ended. The risk is not that the consumer stops on his own. It is that something hits the consumer from outside, a market break, a tariff escalation, a shock nobody has modeled, at a moment when the Fed has a point and a half of room and the deficit is already a trillion dollars in a year of full employment, which is a fiscal position no previous expansion has entered a downturn with. Resilient is the right word for the labor market. It is not the right word for the policy toolkit, and the toolkit is what resilience actually means when the test comes.

I follow technology business models too, and I will add one observation from that side. The private valuations that defined this cycle, the ride-sharing companies and the office-space company whose public offering collapsed in September, have begun to be marked to reality, and the marking is a signal that the easy money of the past decade is being repriced at the margin. That repricing is healthy. It is also the kind of thing that, in previous cycles, preceded the broader correction by about a year. I would not call that a prediction. I would call it a reason to read the rent roll and the macro both, and to notice that they disagree, and to remember that when they disagree the macro has usually been early rather than wrong.

Novi, Michigan Correspondent

The auto industry has been in a recession since the spring, and nobody outside the industry has noticed, because the rest of the economy has not, and I want to start there because the question of resilience depends on whether the thing that has already happened to my industry is a preview or an exception. Here is what has already happened. Light-vehicle sales in the United States peaked in 2016 at about seventeen and a half million and have been drifting down since; they will come in around seventeen million this year, which sounds fine and is, from a supplier’s point of view, a three percent decline in volume on top of a mix shift away from the small cars that fill the plants in the Midwest. Global sales are worse: China, which was the growth market for every supplier I deal with, has been down for sixteen straight months and will finish the year off ten percent; Europe is flat; India has collapsed. The forty-day strike at General Motors this fall took thirty thousand jobs out of the October payroll number and shut down the supply chain for six weeks. And the tariffs, on steel and aluminum since last year and on Chinese components since September, have added a cost to every part I buy that has not come out, because the trade framework announced on October 11 has not been signed and leaves the September tariffs in place. The manufacturing index has been in contraction for three months and hit its lowest level since 2009 in September. In southeast Michigan that is not a leading indicator. It is the weather.

So the honest answer from a purchasing office is that the industrial economy is not resilient, has not been since spring, and is being carried by a consumer who has not yet felt it. The question is whether the consumer will, and I think the supply-chain view is useful here because it is the view of how things propagate. A manufacturing recession propagates to the consumer through two channels: layoffs, which cut income, and capital spending, which cuts the orders that keep other factories running. The first channel has barely opened; the auto suppliers I deal with have cut hours and temporary workers and frozen hiring, but the permanent workforce is mostly intact, because the companies remember how hard it was to rehire after 2009 and because the labor market is tight enough that a laid-off machinist is gone for good. The second channel is wide open: business investment has fallen for two quarters, and the companies I buy from have deferred every capital project that is not required for a launched program, because nobody puts a new line in a plant when the tariff schedule changes every quarter. That deferral is the slump the national numbers are showing, and it is the supply chain’s way of waiting out the uncertainty, and it will reverse quickly if the uncertainty ends and will deepen quickly if it does not.

Now the Fed, from the shop floor rather than the trading floor. Three rate cuts since July have done what they always do for the auto industry, which is to lower the cost of financing a vehicle and a plant, and that has helped the sales numbers hold where they are. It has not touched the thing that is actually holding back investment, which is not the price of money but the unpredictability of policy, and a central bank cannot cut its way through a tariff announcement. The yield curve inverted in August, which the people who follow bonds say has preceded every recession in fifty years, and un-inverted when the Fed cut, and I will say what a purchasing manager says about a signal that goes off and then gets switched off by the person who was supposed to respond to it: the signal was probably right and the response probably bought time, and time is what we have, not a cure.

The global side is where I think the resilience question is most clearly answered in the negative. Germany missed a technical recession yesterday by a tenth of a point, and Germany is the auto industry’s other capital. China is growing at its slowest rate in three decades and its auto market, which was supposed to carry the industry for a generation, has been shrinking for over a year. Every supplier in this region reorganized its sourcing in 2018 and 2019 on the assumption that the tariffs would last, moving work from China to Mexico and Vietnam and Thailand, and that reorganization is done and paid for and is one reason the trade framework, if it is ever signed, will not bring the work back. The world’s industrial economy has absorbed a year of trade war by moving things around and deferring everything it could defer. It cannot defer forever, and the December 15 tariff deadline is the next test of whether the deferral ends in a deal or in another round.

So my assessment is this. The American economy is resilient at the consumer level and brittle at the industrial level, and the two have been moving in opposite directions since spring, and the question for 2020 is whether the brittle part pulls the resilient part down or the resilient part holds the brittle part up until the policy uncertainty clears. The auto industry’s bet, which I can see in the hiring decisions and the capital deferrals, is that the consumer holds and the policy clears, and the industry is positioned for a slow 2020 rather than a collapse. The risk is the one a supply-chain manager always names, which is a single-sourced part. The part is the American household, and the whole world is building on it right now, and nothing in the data says it is running short, and I have been in this business long enough to know that the single source is the one that fails without warning and the one nobody has qualified a backup for. I would not call the economy fragile. I would call it a program with one supplier for its critical component, and I would not put a tariff on that supplier in December.

Sheffield, Jamaica Correspondent

The small open economies of the Caribbean are the canaries of the world economy, and I want to report what the canaries are doing, because the American conversation about resilience is conducted almost entirely from inside the American labor market and the view from a country that imports its fuel, exports its beaches, and borrows in someone else’s currency is different and, I think, more accurate about what is coming. Jamaica is having a good year. Tourism arrivals are at a record, the currency has been stable, the debt that nearly sank the country a decade ago has been brought down through a fiscal discipline that few large countries would tolerate, and the International Monetary Fund, which has been our supervisor for most of my adult life, is pleased with us. All of that depends on the American consumer continuing to board aircraft to Montego Bay, and the American consumer is, by every measure, still boarding. That is the resilience the question asks about, seen from the receiving end, and it is real. It is also the whole of our exposure, and the whole of the world’s, and I want to describe what that concentration means.

Begin with the shape of the world economy as it stands this autumn. The IMF expects global growth of three percent this year, the slowest since the financial crisis, and it has revised that figure down at every meeting for eighteen months. Germany avoided a technical recession by one tenth of a percentage point yesterday; Italy has not grown in a year; the United Kingdom is paralysed by its own politics. China is growing at six percent by its own account, the slowest in nearly three decades, and the account is generous. India has slowed sharply. The emerging economies that depend on exporting commodities to China, which is most of Latin America and Africa, have slowed with it. The one large economy still expanding at anything like its trend is the United States, and within the United States the one sector still expanding is household consumption, and within household consumption the thing holding it up is a labour market at full employment. The world economy in November 2019 is a pyramid balanced on the American shopper, and every small state that lives by exporting to that shopper, as we do, knows exactly how narrow the base is.

Now the policy response, which is where a small state’s experience is most instructive. The Federal Reserve has cut three times since July, from a peak that was itself historically low, and its chairman has signalled a pause with the policy rate between one and a half and one and three quarters percent. The European Central Bank has resumed asset purchases with its deposit rate already negative. The Bank of Japan has been at zero for a generation. The world’s central banks are, in other words, entering a slowdown with less conventional room than at any previous downturn in the modern era, and the unconventional tools they used after 2008 have been running continuously in Europe and Japan for a decade with results that are, charitably, disputed. Jamaica learned in the 1990s and again in 2013 what it is to face a crisis with no monetary room: you turn to fiscal policy, and fiscal policy requires either a sound balance sheet or a willing lender. The United States enters 2020 with a deficit near a trillion dollars at full employment, which is a fiscal position no previous American expansion has carried into a downturn, and with the world as its willing lender for as long as the dollar remains the only currency anyone trusts, which is a long time but is not forever. From the Caribbean, where we have been lectured about fiscal discipline by Washington for forty years, the irony is not lost.

The trade war is the specific risk, and the small-state view of it is simple. The United States and China announced a framework on October 11 that has not been signed and that leaves most existing tariffs in place, with another round scheduled for December 15. The year of tariffs has already reorganised global supply chains in ways that will not reverse, and it has done so at the expense of the manufacturing sectors of every exporting economy, which is why the industrial indices are contracting from Germany to Japan to the American Midwest. A deal in December would stop the bleeding; it would not restore the blood. No deal would convert a manufacturing recession into something broader, through the channel the small states know well, which is that when the large economies stop buying capital goods from each other, they soon stop buying everything from everyone. We are watching the December date the way one watches a hurricane track.

What, then, of resilience? I would distinguish, as a small-state economist must, between the resilience of a position and the resilience of a system. The American position is resilient: full employment, a confident consumer, a banking system far better capitalised than in 2008, cheap energy, and a currency the world still wants. The system is not: the position depends on a single sector in a single country, the policy tools for defending it are depleted, the fiscal cushion has been spent in good times, and the political relationship between the two largest economies is an unsigned framework with a deadline. A small state in that position would be told by the Fund to build reserves, diversify, and prepare for the shock. The large states are being told nothing, because there is no one to tell them.

So my assessment is that the United States enters 2020 resilient in its labour market and brittle in its policy capacity, that the world enters it slower than at any point in a decade and more dependent on the American consumer than at any point in living memory, and that the small states of the Caribbean, who live at the end of that dependence, are enjoying a good year while watching the base of the pyramid very carefully. The canaries are singing. They are also, if you listen, singing slightly higher than they were, which is what canaries do before the air changes, and which the miners learn to hear only after the first time they did not.

Dayton, Ohio Correspondent

I am going to be the optimist, which is not a role a process engineer in a manufacturing town is accustomed to, and I am going to do it from the shop floor, because I think the national numbers are telling a true story about this year and a misleading one about next, and the difference is visible in the order book. Here is the true story. The manufacturing index has been in contraction since August and hit its lowest level since 2009 in September. Business investment has fallen for two quarters. The auto industry is in a slump, the GM strike shut down the regional supply chain for six weeks, Boeing’s grounding has taken output out of the aerospace chain that feeds plants around here, and the tariffs on steel and Chinese components have raised the cost of everything we buy. My plant felt all of it. Our volume this year will finish down from last, our capital projects were deferred in the spring, and we ran short weeks in two months of the summer for the first time since 2015. That is the manufacturing recession the economists are describing, and it is real, and I have lived it.

Here is the misleading story. The slump has bottomed, in the order book if not yet in the index, and it has bottomed for reasons that will hold. The requests for quotation that come across my desk have risen every month since August, and they are rising for a specific reason, which is that the customers who moved sourcing out of China in 2018 and 2019 have finished moving it and are now qualifying the new sources, and some of the new sources are us. I said in this forum last year that the trade war had produced a trickle of reshoring inquiries; the trickle is now a steady flow, and three of the quotes we won this fall are parts that were made in Guangdong in 2017. That is not a boom. It is a structural shift in where a certain class of precision work gets done, driven by a trade policy I have criticized and a risk calculus that every supply-chain manager in the country has now revised, and it is showing up in the Miami Valley as work that did not exist two years ago. The index measures the slump. The order book measures what comes after, and what comes after is better than the index says.

Now the consumer, because the consumer is the thing holding up the slump, and I think the shop floor has something to say about why he is holding. The people who work in my plant are employed, their wages have risen faster this year than at any time since I have been in management, their gasoline is cheap, their mortgage rates fell below four percent this summer, and the ones who were underwater on their houses in 2012 are not anymore. Unemployment is at a fifty-year low. The economists worry that this cannot last, and they are right that it cannot last forever, but the question is whether it lasts through 2020, and the thing that would end it is layoffs, and the companies around here are not laying off, because they spent five years after 2009 trying to rehire the people they let go and could not find them. The labor market is tight enough that a manufacturer who cuts staff in a slump does not get them back in the recovery, and every plant manager I know has learned that lesson and is hoarding labor through this one. That hoarding is why the consumer is fine, and it will continue as long as the slump looks temporary, which the order book says it does.

On the Fed, I will say what an engineer says about a control system. Three cuts since July lowered the cost of the capital projects we deferred, and some of them will be un-deferred in the first quarter because the financing is cheaper and the orders are firmer. The yield curve inverted in August and the Fed cut and it un-inverted, and the people who follow bonds say that proves recession is coming and I would say it proves the controller responded to the signal, which is what a controller is for. The Fed has less room than it did, which is a real concern for the next downturn, and the next downturn is not, on the evidence in my order book, the one that starts in 2020.

The global side is weaker and I will not pretend otherwise. Germany is flat, China is slowing, the trade framework announced in October has not been signed and the December tariffs are still scheduled, and if they go on, the reshoring calculus accelerates and the global capital-goods slump deepens at the same time, which is good for a precision shop in Ohio and bad for the world. I would rather have the deal. But I would note that the thing the trade war was supposed to produce, a reconsideration of where American companies make their critical parts, has been produced, and that the reconsideration is now a tailwind for exactly the places the national coverage describes as being in recession.

So my assessment is that the United States enters 2020 with a manufacturing sector that has had its recession and is beginning to come out of it, a consumer who has been carried through it by a labor market tight enough to make employers hoard workers, and a policy toolkit that is thinner than I would like for the downturn after this one. The world enters it slower and more fragile and more dependent on the American consumer than at any time in a decade, and the December tariff date is the risk I would watch most closely. Resilient is the right word for the household and the labor market. It is becoming the right word for the shop floor, which is further along than the index knows. I run processes, and the thing a process engineer trusts is the leading indicator closest to the product, and the one closest to the product is the request for quotation, and it has been rising for three months. I would not bet the plant on it. I have, however, un-deferred two of the capital projects, which is the most optimistic thing I have done since 2015, and I did it because the order book told me to, and the order book has been right more often than the economists.

Las Vegas, Nevada Correspondent

This town is the most sensitive economic instrument in the United States, because everything it sells is the first thing a household cuts when the household gets nervous, and I want to report that the instrument is reading strong. Visitor volume this year will finish around forty-two million, roughly flat with last year’s record. Convention attendance is up. The resort fees that the operators have been raising every year are being paid without much complaint. The new properties on the Strip are on schedule, the stadium for the football team is going up on the west side of the interstate, and the hotel I manage vendors for has had occupancy above ninety percent on every weekend since March. I have dealt cards and run a warehouse and kept books for a contractor in this valley, and I was here in 2008 when the instrument read the other way and the cranes stopped mid-lift, so I know what the first sign of a nervous household looks like, and it looks like a Tuesday night with empty tables and a convention that cancels its block. We are not seeing it. The American consumer is still coming to Las Vegas, and the American consumer is the whole question.

So I am going to be more optimistic than the bond market, and I want to say why in the terms this town understands. A household that is worried about its job does not fly to Las Vegas for a weekend. It does not spend four hundred dollars on a show and two hundred on dinner and whatever it spends on the floor, which the operators will tell you is still healthy. The unemployment rate is three and a half percent, the lowest in fifty years, wages for the people who actually come here, the middle of the income distribution, are growing faster than they have in a decade, gasoline is cheap and the drive from Los Angeles is cheap with it, and the mortgage refinancing wave this summer put money in pockets that had not had any since 2007. The economists see a manufacturing recession and a yield curve and a Fed that has cut three times, and they are right about all of it, and I see a floor that is full on a Wednesday, and I have learned over nineteen years that the floor is the better forecast of the next six months and the bond market is the better forecast of the next three years, and the question asked about 2020.

Now the house’s view of the risks, because a man who reads budget hearings for pleasure does not ignore the other side of the ledger. The first risk is that this town is more leveraged than it was. The operators have borrowed heavily against the good years to build the new properties and buy back stock, and the real estate investment trusts that now own most of the buildings on the Strip have borrowed against the rent, and corporate debt nationally is near a record relative to the size of the economy, which means that the first bad quarter will hurt more than it did in 2001 because there is less cushion. The second risk is Macau, where the operators make more than they make here, and where the trouble in Hong Kong and the slowdown in China have cut revenue for months and the licenses come up in 2022 with the same man in Beijing. The third is the trade war, which touches this town through the convention business, where the Asian attendance at the big trade shows is softer, and through the Chinese tourism that was the growth story five years ago and has gone quiet.

On the Fed, I will give the dealer’s view. Three cuts since July into a record stock market and full employment is a central bank buying insurance, and insurance is cheap when you do not need it and expensive when you do. The repo market seizing in September, with overnight rates going to ten percent for reasons the Fed has not fully explained, is the thing in this year’s data that I would least like to see repeated, because it is the plumbing, and when the plumbing in a casino backs up, the first sign is never in the public areas. The Fed has fixed it by putting money back in, which is what it did in 2008, and it has about a point and a half of ordinary room left, which is less than any central bank has entered a slowdown with in my lifetime. That is a reason to worry about the downturn after this one. It is not, on the evidence of the floor, a reason to expect this one in 2020.

The global picture is the weak hand at the table and I will not pretend otherwise. Germany missed a recession by a tenth of a point yesterday. China is at six percent and nobody believes six. The trade framework announced in October has not been signed and the December tariffs are still on the calendar. The world outside the United States is slowing, and the world’s slowdown reaches this town through the airport, where the international arrivals are the first to go. They have softened. They have not collapsed. The domestic visitor has more than made up the difference, and the domestic visitor is the American consumer, and the American consumer is, as I keep saying, the whole question, and he is here, at the table, with a drink.

So my assessment is that the United States enters 2020 with a consumer who is still playing, a labor market that is still tight, and a hospitality sector that is reading strong on every instrument it has, and that the risks are leverage, the plumbing, and the thin policy toolkit, all of which are risks for the next downturn rather than evidence of this one. The world enters 2020 weaker than the United States and more dependent on it, and a bad December on trade would be the thing that changed the reading. I have watched a lot of players stay at the table past the point where they should have cashed out, and I have watched a lot of players leave early and miss the run. The American household is still at the table, it is not drunk, it is not borrowing from the cage, and the house is still winning. That is not a guarantee of anything. It is a reading, from the most sensitive instrument in the country, and the reading is strong, and the thing I would watch is not the yield curve. It is the Tuesday night, and the Tuesday night is fine.

Bismarck, North Dakota Correspondent

North Dakota has two economies and they are telling two different stories this year, and I want to report both, because I think the national conversation about resilience is a conversation about averages and this state is a good place to see what the averages are averaging. The oil economy is fine. The farm economy is in the worst shape it has been in since the 1980s. Both are true at once, both are the result of policies made in Washington for reasons that had nothing to do with us, and the question of how resilient the country is heading into 2020 depends, from here, on which of those two stories the rest of the country turns out to be living.

Start with the oil, because it is the good news and because it is the thing that keeps the state budget solvent. The Bakken is producing close to one and a half million barrels a day, near its record, at a price around fifty-seven dollars that is low enough to discipline the operators and high enough to keep the wells running. The rig count is down from the boom, the companies have learned to drill more with less, and the employment that came with the boom has settled into something that looks like a permanent industry rather than a gold rush. I work in energy compliance and I will say that the sector has had a decent year and expects a decent 2020, and that its main worry is not demand but pipelines, which are stuck in the permitting fights that follow every energy project in this country now. The oil economy is resilient because it has already been through its own recession, in 2015 and 2016, when the price went to thirty and the state lost ten thousand jobs, and the operators that survived are the ones who learned to live at fifty. That is what resilience actually is. It is the memory of the last time.

Now the farm economy, which has had no such reprieve. Soybean prices have been depressed since China put its retaliatory tariff on in July of last year, and the Chinese market, which took a third of the American crop, has not come back; the framework announced in October promises purchases that have not been specified or signed. On top of the trade war, this was the wettest year anyone can remember: the spring planting was delayed by weeks, the fall harvest is still in the fields in parts of the Red River Valley because the ground will not carry a combine, and the sugar beet crop, which is the one thing this region grows that China never bought, is partly frozen in the ground. Farm bankruptcies are up about a quarter nationally over last year. The federal government has sent about twenty-eight billion dollars in trade aid to farmers over two years, which is more than the auto bailout cost, and the farmers I know are cashing the checks and not pretending they are income. Ag lending, which was my job once, is tightening, and the bankers are telling the operators what bankers tell operators in the third bad year, which is that the fourth one will be the one that changes the ownership. The farm economy is not resilient. It is being carried by a Treasury check, and the check is a policy, and policies change.

So the two stories, and what they say about the country. The oil story is the story of a sector that was allowed to have its recession and came out leaner, and I think it is the story of American manufacturing this year, which has been in contraction since August and is, by the accounts I read from the industrial Midwest, beginning to find its floor. The farm story is the story of a sector whose recession has been papered over with federal money while the underlying problem, a trade war without an end date, goes unresolved, and I think it is the story of the national economy’s dependence on policy: a consumer carried by a labor market, a labor market carried by a Fed that has cut three times, a Fed with a point and a half of room left, and a federal deficit near a trillion dollars at full employment. The farm economy is what the national economy looks like when the check stops. Nobody in Washington has said when the check stops.

On the Fed and the markets, straight talk from a state that watches the price of two commodities more than it watches the stock market. The yield curve inverted in August and the Fed cut and it un-inverted. The repo market broke in September and the Fed fixed it with money. The stock market is at a record. I do not think any of that tells you much about 2020 except that the people with the tools are using them, and that they have fewer tools than they did. The thing that tells you about 2020 is the December 15 tariff date, because if those tariffs go on, the farm story spreads to the rest of the export economy, and if a deal is signed, the soybean market gets a floor it has not had in eighteen months and the farm story gets a chance to turn. The whole state is watching that date. The whole world should be.

I want to say the plain thing about the trade war, because this state has paid more for it per capita than almost any other and the farmers here are still, by and large, for it. They are for it because they believe China cheated and nobody did anything about it for twenty years, and they are right, and they have been willing to take a hit to see it fixed. What they are not willing to do is take the hit forever for a framework that is announced in October and not signed in November. Patience is a resource. It is being drawn down. The administration should understand that the people who have been most loyal on this issue are the people with the shortest runway, and that the runway ends in a bankruptcy court in Fargo, not a rally.

So my assessment is that the United States enters 2020 with a consumer and a labor market that are resilient, an industrial sector that has had its recession and is finding its floor, a farm sector that is being carried by federal money with no end date, and a policy toolkit that is thinner than at any downturn in my lifetime. The world enters it slower, more dependent on American demand, and waiting on the same December date we are. Resilient is a word for a sector that has already been through the fire and learned to live at fifty dollars. It is not a word for a sector living on a check. The country has some of each. I would like Washington to notice which is which before the check comes due, because out here we can see the difference from the highway, and it is the difference between a pumpjack that is running and a field that is still under water in November.

Myrtle Beach, South Carolina Correspondent

My clients are the economy the economists cannot see. Restaurants, beach shops, a couple of boutique hotels, a dentist, a landscaping outfit, and a half dozen businesses that sell things online from a spare bedroom, none of them with more than forty employees and most with fewer than ten, and I want to answer the question about resilience from their books, because small businesses are half of American employment and they do not show up in the manufacturing index or the yield curve, and they had, by any honest reading of my clients’ numbers, a very good year. The Grand Strand had a record tourist season. The restaurants were full through October, which never used to happen. The shops sold through inventory they had worried about in the spring. The online sellers are up double digits, because the shift to buying things on a phone is a tailwind that does not care about tariffs. And every one of them is worried, in the way small business owners are always worried, about one thing, which is not a recession. It is finding people.

That is the first thing I want to say about resilience, because I think it has been missed. The constraint on my clients in 2019 was not demand. It was labor. The restaurants could not hire enough cooks. The hotels could not get housekeepers and the seasonal visa program that used to supply them was capped below demand again this year. The landscaper is turning down work. The unemployment rate is three and a half percent, the lowest in fifty years, and in a tourist town that means the help-wanted sign is permanent and the wage for a dishwasher is fifty percent higher than it was three years ago. An economy whose binding constraint is that businesses cannot find enough workers to meet the customers who are coming through the door is not an economy in trouble. It is an economy running hot, and the people running it are complaining about the heat, which is a complaint I would take over the alternative every time.

Now the things the economists see, because I read them too and I want to give them their due. The manufacturing sector has been contracting since August. The yield curve inverted in August and the Fed has cut rates three times. The trade framework announced in October is not signed and the December tariffs are on the calendar. Germany is flat and China is slowing and the IMF says the world will grow at its slowest pace since 2009. All true. I would add one that touches my clients directly: the tariffs on Chinese goods that went on in September landed on exactly the things a beach shop sells, the apparel and the accessories and the small electronics, and the shop owners paid them and mostly passed them on and the customers mostly paid, which is a thing that happens when the customer is employed and does not happen when he is not. The tariffs were a tax on my clients’ inventory. The labor market let them pass it through. That is the mechanism of resilience, and it is a mechanism that works only as long as the customer has a job.

Here is where I think the social-media view adds something. I watch consumer sentiment in real time, in the engagement on my clients’ pages and the booking windows on the hotels and the search traffic for the shops, and the thing I noticed this year is that the booking window shortened. People are coming, they are spending, but they are deciding later, which is what a confident household does when it is also a slightly cautious one: it keeps the options open until the last week. The hotel owners hate it, because they cannot forecast, and I would read it as a sign of a consumer who is fine and knows the news is not, and who has decided to keep spending while watching. That is a different thing from a consumer who is retrenching, and it is a different thing from a consumer who is oblivious. It is the booking behavior of someone who has read the headlines and gone to the beach anyway, and it is, I think, the actual state of the country.

On the Fed and the markets, I will be brief, because it is not my field and because I think my clients’ view is the useful one. The rate cuts lowered the cost of the lines of credit the small businesses run on, which helped at the margin. The stock market at a record means the retirees who fill this coast feel richer and tip better, which is a real effect in a town like this. The repo market seizing in September meant nothing to anyone I work with and I suspect meant nothing to most of the country, and the Fed fixed it, and I will note that the people most alarmed by it were the people who make their living being alarmed. The small business owners I know are not watching the Fed. They are watching the help-wanted sign and the booking window, and both are telling them the same thing, which is that 2020 looks like 2019 with a shorter runway.

So my assessment is that the United States enters 2020 with a small-business economy running at capacity, constrained by labor rather than demand, passing through tariffs because its customers can pay them, and watching the news while continuing to spend. The manufacturing recession is real and has not reached the coast. The global slowdown is real and has not reached the restaurant. The policy toolkit is thinner than it was, which matters for the next downturn, and the December tariff date is the one thing that could change the booking window from short to empty. Resilient is the right word for what I see in my clients’ books, and I would add a word the economists do not use, which is tired: the owners are tired, the workers are scarce, and the margin is thin, and an economy that is tired and running hot is an economy that will slow when the customer finally decides later than the last week, which is to say not at all. That has not happened. The booking window is short. The tables are full. The dishwasher makes fifteen dollars an hour and the owner complains about it every day and would not trade it for 2010, and neither would I.

Knoxville, Tennessee Correspondent

I work in a county public-works shop, which means I spend my days reading two kinds of numbers that most economists never see: the bids that come in on road and bridge and water projects, and the sales-tax receipts that pay for them. Both are telling me something about resilience, and they are telling me different things, and I want to lay them side by side because I think the local-government view of this economy is a useful corrective to both the bond-market gloom and the stock-market cheer. The sales-tax receipts are strong. Knox County’s collections are up over last year, the state’s are up, and the growth is coming from exactly where you would expect in a full-employment economy, which is people buying cars and eating out and renovating houses. The bids are the other story. They are coming in high, sometimes twenty percent over the engineer’s estimate, because the contractors are busy, the skilled labor is scarce, and the materials, especially steel, cost more than they did two years ago. A county that has more money than it has ever had and cannot buy as much road with it is a county living in an economy that is running hot and running out of capacity at the same time. That is resilience, in the sense the question asks about. It is also the sign of an economy at the top of its cycle, and a civil engineer knows that the top of a cycle is where the load is greatest.

Let me take the capacity problem first, because I think it is the thing the national debate underweights. Unemployment is at a fifty-year low. Every contractor in East Tennessee is turning down work. The trades programs at the community college cannot graduate electricians and welders fast enough, and the seasonal visa programs that used to fill the gap are capped below what the industry needs. Wages for skilled construction labor are up sharply, which is good for the people earning them and is also why my bridge costs twenty percent more than it did. That is not a sign of weakness. It is a sign of an economy that has used up its slack, and an economy with no slack has two possible futures: it slows gently as capacity binds, or it gets hit by something external and slows hard because there is no cushion. The bond market has bet on the second. The sales-tax receipts have bet on the first. I have been in enough budget meetings to know that both bets are usually half right.

Now the things that worry me, in the order a public-works engineer would list them. The first is debt, and not the federal kind, though the federal deficit at a trillion dollars at full employment is a number no previous expansion carried into a downturn, and I would like someone in Washington to explain the plan for the year the receipts fall. I mean the kind I see in the county’s own books and in the books of every entity I deal with: the utilities that have borrowed to build, the hospital systems that have borrowed to expand, the companies whose bonds the ratings agencies have been quietly downgrading all year. Corporate debt is near a record relative to the size of the economy, and in a downturn that debt is the thing that converts a slowdown into layoffs, because a company that owes money cannot hoard labor the way the manufacturers around here have been doing. The second is the trade war, which touches this region through the auto plants in Chattanooga and Spring Hill and the parts suppliers in every county between, and which has produced a framework announced in October, unsigned in November, with tariffs scheduled for December. The third is the Fed, which has cut three times and has a point and a half left, and which fixed a seizure in the money markets in September that nobody has fully explained, and I would say what an engineer says about a structure that groaned once and was shored up: the shoring is not the fix.

The global side I will take briefly, because it reaches here through the plants. Germany flat, China at a thirty-year low, the IMF at its lowest forecast in a decade. The foreign automakers that anchor this state’s manufacturing are German and Japanese and Korean, and their home markets are slowing while their American plants are running full, which means the American consumer is carrying their global balance sheets as well as our own. That is a lot of load on one member, and a structural engineer looks at a member carrying that much and asks what the redundancy is, and the honest answer is that there is not much. The rest of the world is leaning on us. We are leaning on the household. The household is leaning on the job. The job is secure as long as the employer does not have to choose between the payroll and the bondholder.

So my assessment, from the shop. The United States enters 2020 with strong receipts and high bids, which is to say a full-employment economy that has run out of slack and is paying for it in prices rather than in output. The consumer is fine and the labor market is tight and the manufacturing slump has, by the accounts I trust, found its floor. The risks are leverage, trade, and a central bank with little room, and all three are risks of magnitude rather than timing: they do not tell you when, they tell you how bad. The world enters 2020 slower than the United States and leaning on it, and the December tariff date is the external shock most clearly on the calendar. I would call the economy resilient in the way a bridge at full rated load is resilient: it is holding, it was designed to hold, and the question is not whether it holds today but what happens when the truck that is not on the drawings pulls onto the span. Nobody can tell you that truck’s weight. I can tell you the county would not let me rate a bridge on the assumption it never comes. The country is rating its economy that way, and so far it has been right, and so far is the phrase every engineer learns to distrust.