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American economic hubris is peaking

Myles Udland
Markets Reporter

Americans are feeling really good about the U.S. economy.

And through this confidence, a bit of hubris might be showing about just how great things are in the world’s largest economy.

The week’s biggest business story is the spat between President Donald Trump and Harley-Davidson (HOG). On Monday, Harley-Davidson announced it would move the production of some motorcycles overseas as a result of recently-enacted tariffs by the EU. The company said the cost of this new tax on bikes made in the U.S. and sent to the EU is prohibitive. Trump followed this news by tweeting negatively about Harley-Davidson’s decision, going so far as to warn this will be the “beginning of the end” for the iconic American brand.

In the initial aftermath of this dust-up, it appears that Trump’s supporters are standing behind the president. Even if they work for Harley-Davidson.

President Trump and Vice President Mike Pence meet with Harley Davidson executives on the South Lawn of the White House in Washington, Feb. 2, 2017. (Photo: Pablo Martinez Monsivais/AP)

Writing for The Financial Times on Tuesday, Patti Waldmeir spoke with Trump-supporting workers at a Harley-Davidson factory in Minnesota who said Trump is a “very smart businessman” and that it is the EU which is to blame for Harley-Davidson’s decision.

The Trump administration imposed tariffs on imported steel and aluminum from the EU in late May, which led to the EU’s countermeasure, which took effect on June 22.

Losing a job isn’t a big deal these days

But elsewhere in Waldmeir’s report, she notes that, “Several workers said they thought they could find other employment if they lost their Harley jobs — partly because the US economy is booming.”

Perhaps this enthusiasm is not misplaced.

Earlier this month, Federal Reserve chairman Jay Powell said the economy is currently doing “very well,” and that, “most people who want to find jobs are finding them.” The data would support this assertion.

In April, the number of open jobs in the U.S. hit a record 6.69 million, exceeding the 6.34 million workers who were unemployed as of that same month. (In May, the number of unemployed workers fell further to 6.07 million.)

And so for the first time since data on job openings began in 2001, the ratio of job seekers to open jobs has fallen below 1; after the crisis, there were more than 6 job seekers for each open position. 

The number of jobs open exceed the current number of unemployed workers. After the financial crisis, there were more than six unemployed workers for each job open. (Source: FRED)

Additionally, data from the Atlanta Fed suggest that second quarter GDP growth is likely to exceed an annualized rate of 4.5%.

But Trump’s desire to pick fights with the U.S.’s major trading partners has already begun to cloud the economic outlook. Speaking in Portugal last week, Powell said some businesses had put plans to hire or invest on hold because of trade worries and that, “those concerns seem to be rising.” 

Unintended consequences

Since the beginning of Trump’s trade agitations, economists have warned about the unintended consequences of trade actions on the economic outlook. As Harley-Davidson’s announcement shows, these actions have also begun to change the corporate landscape.

Barclays economist Michael Gapen wrote earlier this month that, “What is also clear to us is that protectionism will cut against the benefits of the recently enacted Tax Cut and Jobs Act. Anti-trade policies, particularly tariffs, act like a tax on consumers and businesses by raising the cost of trade.

“By creating uncertainty, they also weigh on asset valuations, which could weaken households’ ability to sustain spending and reduce the incentive for businesses to invest.”

So while employment data suggest that, all else equal, Harley-Davidson workers are right to believe they’d be more than able to find gainful employment were they to lose their jobs, the impacts of trade make it such that all else is not equal.

A muddied business landscape due to shifting international trade agreements which results in layoffs and delayed investments are the sorts of conditions under which the currently-rosy economic picture deteriorates.

And we may one day look back at a time when workers were more than happy to support an economic policy that cost them their job because jobs were just so plentiful as the moment this cycle started to turn.

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland