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August 15, 2019

Consumers supporting US economy amid manufacturing slump


Thu, Aug 15, 2019

WASHINGTON: American consumers appear to be carrying the US economy in their shopping carts as manufacturing slumps amid President Donald Trump´s trade conflict with China, and financial signals warn of a possible recession.

"The economy is phenomenal," Trump said Thursday. "We had a couple of bad days but we are going to have some very good days because we had to take on China."

But despite his cheerleading, a raft of new US data reports showed a mixed picture on the economy, leading Wall Street to post only a tepid recovery from its worst day of the year.

Global financial markets remain concerned about slowing European and Chinese economies, which caused a closely watched recession signal to flash red, sending stocks worldwide down two percent or more on Wednesday.

The US manufacturing sector, which declined in the first two quarters of the year, putting it in recession, slumped again in July and is now down 1.5 percent this year, the Federal Reserve reported.

That comes on the heels of other data showing the trade war has undermined business confidence and is curtailing investment amid the uncertainty.

"It is hard to avoid the conclusion that the industrial sector is being dragged down by overseas developments," analysts John Ryding and Conrad DeQuadros of RDQ Economics said.

Their analysis highlighted "the impact of tariffs on supply chains, and the effects of uncertainty about these policies may have had in subduing capital spending."

Although Trump has made boosting manufacturing a central focus of his economic policies, this sector makes up a dwindling share of the US economy.

"The sector is in recession, but it is nothing like deep enough to threaten the overall economy," said Ian Shepherdson of Pantheon Macroeconomics, noting that he expects "a gradual slide into the fall."

Even before Trump gave retailers an early Christmas bonus by delaying tariffs on more than half the $300 billion in Chinese goods targeted for new 10 percent punitive duties, Americans´ spending habits were buoying the economy.

That trend continued in July, the first month of the third quarter, as retail sales jumped 0.7 percent, far more than expected, driven by e-commerce and Amazon´s 48-hour prime "day," according to new data from the Commerce Department.

"The United States is now, by far, the Biggest, Strongest and Most Powerful Economy in the World, it is not even close!" Trump tweeted. "As others falter, we will only get stronger. Consumers are in the best shape ever, plenty of cash."

Walmart -- which has been beefing up its online presence to compete with Amazon -- added to the good retail news, reporting better than expected profits in the latest quarter and boosting its forecast for the year.

"July´s strong results are consistent with a confident consumer," National Retail Federation chief economist Jack Kleinhenz said. "Households are in good shape with spending and that should continue as long as the labor market remains healthy."

But he warned that financial market volatility and "increased trade tensions in recent weeks may put a wind of caution in consumer spending as we move forward in 2019."

Trump said in a radio interview Thursday that his negotiators "are making tremendous progress" on a possible deal with China.

"China frankly would love to make a deal and it´s got to be a deal on proper terms. It´s got to be a deal, frankly, on our terms. Otherwise, what´s the purpose?" he said.

By December 15 all of the goods imported from China will face stiff US tariffs, and markets are watching anxiously to see if talks planned for September are actually held.