All Posts Tagged: U.S.-China trade war

U.S. Outlook: Hints of a consumer slowdown ahead

Scott Anderson
Chief Economist

Robust or resilient? Both words have been used in recent days to describe the U.S. consumer today. This theme has been frequently cited by bullish investors and analysts expecting future stock market gains. The July personal income and spending report adds more evidence to the strong retail sales results in July. Real personal spending increased a sizzling 0.4%, or 5.3% annualized in July, a notch above the 4.7% annualized growth recorded in the revised Q2 GDP report released earlier this week. However, even in this report, there are hints that the days of robust consumer spending may be numbered. Profligate consumers may soon be an endangered species.

Pent-up Consumer Demand

So far this year, there has been some pent-up demand from consumers. Spending has bounced back from lackluster fourth-quarter levels, especially from lower-income consumers, who are feeling pretty good about increasing wages and better job prospects. This is evident in the solid second-quarter earnings from Walmart and Target. Consumers rarely see downturns in the economy until they start to lose their jobs, or the stock market takes a dive. Neither are flashing warning signs yet.  U.S. equity prices remain just below recent highs and total nonfarm job growth is still holding up fairly well.  We are forecasting another 149,000 net nonfarm jobs were created in August, only a bit below July’s 164,000 gain.

Spending Beyond Their Means

Yet, more important indicators for future consumer spending growth, such as real disposable personal incomes and hours worked, will put the theory of the resilient consumer to the test. Real disposable personal income fell at a 1.7% compound annualized rate last month, while average weekly hours fell to 2016 levels.

Personal savings rates have already come down sharply, dropping to 7.7% from a high of 8.8% in February. In short, many consumers have been spending beyond their means over the past few quarters. Real consumer spending will not be able to maintain its current pace of growth for much longer.

Consumers may have also been rushing to beat future tariff increases, pushing forward sales that would otherwise have taken place in the third and fourth quarters.  The Trump Administration is placing 15% tariffs on another $110 billion of Chinese imports on September 1st. Tariffs on another $250 billion of Chinese imports are expected to increase from 25% to 30% on October 1st, and 15% tariffs will be applied to another $160 billion of Chinese imports on Dec. 15th. August and September retail sales may show a very different story.

Losing Confidence

Trade war escalation already appears to be shaking consumers’ confidence about their economic and financial future. The University of Michigan’s consumer sentiment index slid in August, as market volatility and tariff threats intensified. The index plunged to 89.8 in August from 98.4 in July. That was the biggest monthly drop since December 2012. The index is currently at its lowest point since October 2016, before Donald Trump was elected President.

The details of the report showed consumers scaling back plans to buy cars, major appliances, and homes. We are forecasting real consumer spending growth will slow to around 3.6% in the third quarter from 4.7% in the second. We see it slipping further to just 2.3% in the fourth quarter and then falling below 2.0% next year. In short, consumer headwinds appear to be intensifying and one shouldn’t take consumer resilience for granted. Consumers too will have to take shelter from the trade war and global slowdown storm.

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U.S. Outlook: I hope you like whitewater rafting

Scott Anderson
Chief Economist

If you follow the economy, you’re going to feel like you’re on a whitewater rafting ride in the months ahead. Monetary stimulus may not be enough to reverse a sharp economic slowdown just ahead of us.

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U.S. Outlook: Profits and Bonds Flash Same Downbeat Signals

Scott Anderson
Chief Economist
Economic crisis - Stock market graphs and charts - Financial and business background

The inverted Treasury yield curve and U.S. corporate profits are sending downbeat signals about our near-term economic and financial future.

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U.S. Outlook: Employment Data Show Rot Beneath the Surface

Scott Anderson
Chief Economist

The latest U.S. employment data may seem solid, but we see clear signs of rot and deterioration below the surface that suggest even slower job growth ahead.

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Investment Insights: Lackluster trade fireworks

Wade Balliet
Posted by Wade Balliet
Investment Strategy

After all the excitement surrounding the trade meeting between U.S. President Donald Trump and Chinese President Xi Jinping over the weekend, the outcome seems to have fallen flat for investors.

On Friday, ahead of the summit, the S&P 500 leapt higher before paring gains on Monday as investors realized no long-term solution had been reached. However, some positives did result from the conversation between the two heads of state.

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