Stock markets have been rocked by volatility in recent weeks. Heightened trade tensions and global economic slowdown have led to huge selloffs and a general loss of confidence in markets. However, the latest retail data is in, and the numbers hint that the American economy still has plenty of growth potential. Consumer spending is responsible for roughly two thirds of the U.S. economy, so retail data is often used as a benchmark when evaluating its overall health.
Retail Sales Up in The Previous Month
According to the Commerce Department, retail spending grew by 0.7% last month, beating the analyst consensus of 0.3%. If omitting the volatile automotive and gasoline industries, the figure would be closer to 0.9%.
Growth was largely driven by internet retailers, although they weren’t the only high performers. Total internet retail sales grew by 2.8%. Amazon Prime Day and similar sales were significant contributors.
Traditional brick and mortar retail also trended upwards, with department stores faring the best out of the sector. Core retail sales grew 1.0%, up from 0.7% in June.
Retail is Offsetting Weakness in Manufacturing and Business Investment
Because consumers are responsible for such a large percentage of total GDP, their spending can offset weakness in other areas. Manufacturing is down across the U.S., due to higher costs and competition from abroad.
Sales in the automotive industry declined 0.6%, a worrying sign for America’s already beleaguered manufacturers.
Business investment is also a concern. Corporations have been spending less in 2019. The decline has been attributed to global trade tensions, particularly the ongoing war of tariffs between the U.S. and China. However, another factor could be that companies have finally settled in and adjusted following the Tax Cuts and Jobs Act of 2017, which lowered the corporate tax rate from 35% to 21%.
Trade War is Still the Biggest Headwind
President Trump announced this week that tariffs on $300 billion of Chinese goods will be delayed until December 15. The tariffs will target items like smart phones, electronics, and children’s toys. The delay will keep prices stable throughout the rest of the year and ensure that consumer spending remains strong until after the Christmas period.
The big question for investors is what will happen once the tariffs are in effect?
While a recession doesn’t look likely in the immediate future, the longer a China deal takes, the more likely it is that the record 10-year economic expansion will start to change course.
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