WASHINGTON,. The US economy is producing solid statistics showing it remains in prime health, but a closer look at reports released yesterday revealed less rosy details.
A year after Congress approved a sweeping tax overhaul in a big to boost the US economy, the small but growing evidence of strain adds to concerns the brisk pace of American expansion could taper off.
New government data yesterday showed American consumers spent liberally in October, taking home new cars and gas, while forking out more cash for building materials, department store goods and appliances.
A manufacturing survey in the New York region also showed an unexpected increase in activity for the month.
Just ahead of the holiday shopping season, the pace of spending suggested major retailers were set for a nice haul in the crucial year-end period, supporting the overall economy amid continued steady job creation, historic low unemployment and signs wages have finally begun to rise.
But on closer inspection, there was modest cause for concern: Much of the retail sales gains were due to one-off factors not likely to be repeated, while the estimates for the prior two months of were downgraded.
If volatile autos and gas categories are excluded, retail spending was actually far slower last month.
And meanwhile, sales of building supplies were helped by reconstruction after Hurricane Michael, while the everything-must-go liquidation sales at Sears, the bankrupt but historic mega-retailer, boosted the department stores category.
Ian Shepherdson of Pantheon Macroeconomics said in the three months ending in October, “core” sales which exclude the most volatile categories hit their slowest annual pace since March.
The hurricane may also have been a factor boosting auto sales in the month.
“This looks very much like the end of the boost from the tax cuts, and it strengthens our conviction that GDP growth has peaked,” he wrote in a research note.
In light of the news, Macroeconomic Advisors cut their growth estimates slightly for the entire second half of 2019.
Global growth weakens
Global retail giant Walmart yesterday reported better-than-expected quarterly profits, and raised its full-year earnings projections, but failed to match revenue forecasts.
And a survey of the manufacturing sector by the Philadelphia Federal Reserve Bank went the opposite direction from the New York region — plunging unexpectedly.
Barclays said this adds to other evidence that manufacturing was “on a moderating path” — held down by a strong US dollar, rising interest rates, scarce resources.
Manufacturers also frequently complain of the bite from President Donald Trump’s trade war, which has disrupted supply chains and raised input costs, according to the most recent Institute for Supply Management survey, which fell in October for the second month in a row.
Add to this a weakening housing market — crimped by rising interest rates and a shortage of construction workers — and broadening trade deficit and there are enough signs to cause some economists to predict that the best days of America’s recovery are in the rearview mirror.
Some economists say these early signs increase the chances of a recession, given the tremendous rise in debt levels around the world over the last decade and the potential that rising borrowing costs could burst an economic bubble.
The mixed economic picture is among the maelstrom of signals pushing Wall Street in different directions, with fears of weaker demand and lower revenues leaving the major stock indices down sharply since last week.
The Federal Reserve has tried to walk a fine line, raising interest rates slowly enough to allow continued growth but not so slowly that inflation gets out of hand.
Fed Chairman Jerome Powell said Wednesday the central bank was keeping a close eye on a “concerning” slowdown in global growth.
Berlin reported Wednesday that the German economy had abruptly contracted in the third quarter. China has likewise shown signs that demand there is beginning to totter.
However, Powell said policymakers remained “very pleased” about the state of the economy. But he acknowledged that there are :challenges ahead.” — AFP