Rex Nutting: The faltering economy is at the mercy of an unpredictable and cornered president

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President Trump rails against journalists asking questions about his efforts to solicit foreign powers to dig up dirt on his political opponents. Meanwhile, the economy is sinking.

There’s a lot of talk about recession coming in the United States after dismal readings on two closely watched forward indicators from the Institute for Supply Management this week. But despite the terrible numbers, there’s nothing inevitable about a recession.

Read the news here: U.S. manufacturers experience worst month since 2009

And here: Service side of economy grows at slowest pace in three years

U.S. business activity is growing quite slowly.

They don’t have much confidence in their forecasts, but most economists still think a recession will be avoided.

No one knows what Donald Trump will do next. He’s the X factor in every economist’s model, in every company’s business plan.

They don’t see the usual imbalances that precede a recession. Warehouses are not stuffed with unsold goods. The Federal Reserve hasn’t squeezed the economy. Credit is not tight. Household balance sheets are in good shape. Most corporations are flush with cash, and few are overextended. Job growth is still good and incomes are still rising.

Fed Chairman Jerome Powell has said the economy is in “a good place.”

On the other hand, global growth is softening, even aside from President Trump’s tariff games, but the U.S. generally hasn’t been vulnerable to global business cycles in the modern era.

In other words, there are pockets of concern, but nothing obvious that would push the economy over the edge in normal times. But these times are not normal.

No one’s like Trump

Simply put, there’s no precedent for our current predicament, which stems almost entirely from the unilateral demands of the U.S. president to rewrite the rules of trade — which is to say, rewrite the rules of global commerce.

Now read: Trump’s got the whole world economy in his hands — but who elected him king?

No one knows what Donald Trump will do next. He’s the X factor in every economist’s model, in every company’s business plan. But businesses must plan ahead, and right now many of them are seriously contemplating the worst-case scenarios.

Usually, the main unknown for businesses is future demand for their product. But now there’s an additional worry: The availability and price of crucial inputs for their production process.

The direct impact of the trade war has been modest, but indirect effects are growing. A supply chain is only as strong as its weakest link, and no one knows where all the crucial junctures are.

For want of a nail, the kingdom was lost — or so the proverb goes. The worst-case scenario for any business could be that a vital input will be unavailable for an extended period at any price.

This is why the Federal Reserve is so impotent now. It has cut interest rates and will probably cut again and again. But to what effect? The problem is not the price of credit or the availability of credit, but the existence of the supply chain itself.

What’s next?

Everyone has their own theory about what Trump will do next. But none of them are any good, because Trump’s secret power is his inscrutability and his disdain for the conventional wisdom about what a self-interested politician “ought” to do in any situation.

Some think he will notice what he’s doing to the stock market and the economy. He’ll back off on his trade war with the Chinese, and cruise to re-election in 2020 as the man who saved the economy.

But others think Trump could double down on the trade war because he won’t want to be seen as weak, especially when he’s under attack from so many directions. The lessons of the Kavanaugh confirmation and the Mueller Report and the “Access Hollywood” tapes — no retreat, no surrender — cannot be unlearned.

Or he could do something diabolically clever, like bargain with Chinese President Xi Jinping to get the dirt on the Bidens and the other Democrats in exchange for dropping the tariffs.

No wonder business confidence is crumbling. We’re at the mercy of an unpredictable, cornered and extremely powerful narcissist.

Rex Nutting is a MarketWatch columnist.