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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 a modest 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.
Longer term bond yields continued to fall with the 30-year US Treasury
bond dropping below two percent for the first time ever, while the 10-year
hit the lowest point in three years as investors sought safe havens to hedge
against a possible downturn.
Trump continued to call on the Federal Reserve to cut interest rates,
saying it made a “big mistake” by increasing too fast.
Fed Chairman Jerome Powell “should be cutting rates. Every country all
over the world is cutting. We want to stay sort of even,” Trump told
reporters.
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.
– Confident shoppers –
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.
“Households are in good shape with spending and that should continue as
long as the labor market remains healthy,” National Retail Federation chief
economist Jack Kleinhenz said.
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 told reporters Thursday that talks with China set for September are
“still on” — less than a week after he said they might be canceled — and
trade negotiators also have been in contact by phone.
“We’re talking and they’re offering things that are very good,” he said,
but warned that the US still has at its disposal “the ultimate form of
retaliation.”
By December 15 all goods imported from China will face stiff US tariffs,
and markets are watching anxiously for signs of progress in the dispute.
Meanwhile, China, which has been gradually reducing its holdings of US
Treasury debt, for the first time since May 2017 is no longer the biggest US
creditor, according to data released Thursday. Japan retook the top spot.
(BSS/AFP)
