U.S. Outlook: Signs Still Point to Slower Growth Ahead
Despite stocks hitting record highs in November, the economic tea leaves continue to indicate slower U.S. and global economic growth in the fourth quarter. The Citi U.S. economic surprise index has been slipping since September 25th.
Positive economic surprises have largely come from only housing and labor market indicators over the past month, while retail positive surprises have faded.
October’s retail sales and industrial production releases revealed the continuing tug-of-war between a relatively resilient U.S. consumer and a manufacturing sector that remains mired in a deepening recession.
The U.S. consumer is increasingly looking tired. Retail sales growth is on a clear downtrend, even though overall it is still a long way from recessionary levels of spending.
Retail spending categories last month show most of the consumers’ additional spending went to gasoline stations, food, and motor vehicles – all necessities for most people. Meanwhile, discretionary retail spending categories like clothing, furniture, sporting goods, and electronics were all noticeably weak.Crisis of Confidence?
Moreover, weak real average weekly earnings growth of only 0.9% year-on-year through October, rising initial jobless claims, and a large gap between the University of Michigan Consumer Sentiment Index and the Conference Board’s Consumer Confidence measure, indicate consumer spending could continue to slow in 2020. The headwinds for the consumer are blowing a bit harder today.
Today’s retail sales data is consistent with our forecast for 2.3% real consumer spending growth in the fourth quarter. That is far lower than the 2.9% growth in the third quarter and a sizzling 4.6% growth pace in the second quarter. Our view is the longer manufacturers and the global economy struggle, the more that weakness will spread to the overall U.S. labor market and consumer spending.
For more, see my full U.S. Outlook, delivered on November 15.