The U.S. economy is slowing. Everyone agrees -- from Wall Street economists to top officials at the Federal Reserve. But by how much?
A key driver is business confidence -- and whether executives are investing in new factories, equipment and technology. And based on the latest economic data, executives are becoming less optimistic as the stimulus fades from President Donald Trump's late-2017 tax cuts.
The Census Bureau reported on Thursday that new orders for manufactured durable-goods orders -- long-lasting things like machinery, cars, refrigerators and bricks -- increased by 1.2% in December to $254.4 billion. The reading was below economists' average forecast for a 1.7% increase, according to the data provider FactSet.
Meanwhile, the Federal Bank of Philadelphia's Manufacturing Business Outlook Survey showed that manufacturing activity has weakened over the past month in the northeastern U.S. region of Pennsylvania, southern New Jersey and Delaware. The bank's index for current manufacturing activity fell to negative 4.1 in February, from a positive reading of 17 the prior month. It was the first negative reading since May 2016; economists had projected a February reading of positive 14.5.
Economists don't put too much stock in the individual data points, which can vary widely between periods, but taken together the reports might indicate that executives are becoming less inclined to invest in future growth at a time when the economy is slowing, not accelerating as it did last year following the tax cuts, said Beth Ann Bovino, chief U.S. economist at Standard & Poor's.
"If businesses are scared, they don't invest, and it seems that there's a number of reasons piling up that could make them more fearful," Bovino said in a phone interview.
While Trump's tax cuts spurred outsized growth last year, most economists said that the impact is now fading, especially with businesses and investors worried about the potential damage to profits and the economy from the president's ongoing trade dispute with China, not to mention the uncertainty spurred by the recent government shutdown.
It doesn't help that some key economic data were delayed by the government shutdown, since many employees were furloughed at agencies that compile the figures and produce reports. The Commerce Department isn't expected to publish its report on fourth-quarter gross domestic product until later this month; initially it had been scheduled for the end of January.
Indeed, the Census Bureau's report Thursday on durable-goods was delayed.
"Data collection and processing were delayed for this indicator release due to the lapse in federal funding from Dec. 22 through Jan. 25," according to the Census press release. Not exactly confidence-inspiring.
The new readings come a day after minutes from a closed-door Federal Reserve meeting last month showed that top officials at the U.S. central bank were so rattled by the steep stock-market selloff in late 2018 that they began considering an early end -- as soon as this year -- to their balance-sheet reduction efforts, which had put upward pressure on interest rates on loans for consumers and businesses. The fed typically raises borrowing costs when the economy is strengthening and cuts them when in a recession or sliding toward one.
In the wake of last year's market selloff, Fed Chairman Jerome Powell already had signaled that the central bank's monetary-policy committee would hold off on future interest-rate increases until signs appeared that the economy was accelerating, or until inflation starts to creep up.
"The latest factory data point to an economy that has rapidly lost steam," said Joe Lavorgna, chief Americas economist for the French bank Natixis.
James Bullard, president of the Federal Reserve Bank of St. Louis, told CNBC on Thursday that he thinks interest rates might currently be "a little bit too high," while acknowledging that he's in the minority opinion among top officials at the central bank.
It's not just the U.S. economy that investors are watching. Conditions have weakened in Europe and China, and Wall Street analysts at Bank of America Corp. (BAC - Get Report) warned in a report Thursday that a "global recession is now the biggest concern" for European corporate-bond investors.
If that happened, investors would be well-advised to buy short-term bonds, according to the report, since the Federal Reserve would likely "cut interest rates to zero over the course of six to 12 months."
"Uncertainty is the enemy of growth," Bank of America economists warned in a separate report on Wednesday. "Trade wars are hurting growth."
S&P's Bovino had cautioned last year that most corporations were using their tax windfall to buy back shares -- essentially doling out the extra cash as a short-term reward for shareholders instead of reinvesting it in their own businesses. That dynamic could explain why U.S. economic growth isn't accelerating to a sustained level above 3% annually, as the Trump administration had promised.
On average, economists still project growth this year at 2.5%, down from an estimated 2.9% in 2018, according to FactSet.
Watch business confidence -- and investment -- to see what happens next, according to Bovino.
"If this trade dispute gets worse and markets, and confidence levels are being challenged, then the slowdown could be severe," she said.