Popular Economics Weekly
The effects of the Trump administration’s trade wars are already slowing down consumer spending, not a good sign if Trump maintains tariffs for a longer period, as promised.
The US Census Bureau is now reporting a sharp decline in retail sales. A 1.1 percent decline in auto sales (signaled by the prior release of unit sales at manufacturers, says Econoday) is no surprise and neither is a 1.8 percent jump at gasoline stations, due to rising gas prices. A big surprise, however, is the 1.3 percent drop at electronics & appliance stores that follows a 4.3 percent tumble in March.
Weakness here hints at lower prices for consumer electronics and also lower spending on home improvements, reports the Census Bureau. Furniture sales also hint at trouble for residential investment, coming in unchanged following March’s 3.1 percent decline, as do sales of building materials which fell 1.9 percent in April following, however, a 1.2 percent rise in March.
Lower Q2 consumer spending is also bringing down the consensus Q2 GDP growth into the 2 percent range, after the 3.1 percent Q1 GDP growth update, says CNBC chief economist Steve Leisman.
Why? I maintain that Trump’s belligerent trade talks are turning off new investments, as manufacturers also batten down the hatches for a prolonged trade war. Prices are rising everywhere, and the U.S. is just beginning to see the effects of the various trade wars, including a threatened increase in auto tariffs that has unsettled European markets as well.
Industrial production is plunging, the Federal Reserve reports, down 0.5 percent in April. Motor vehicles and parts, where consumer sales have been mostly soft this year, fell 2.6 percent in April for a second monthly decline and year-over-year contraction of 4.4 percent. (Note this is a direct effect of higher import tariffs being passed on to vehicle manufacturers.)
Business equipment fell 2.1 percent in the month for yearly growth of only 0.1 percent which doesn’t point to acceleration for business investment. Consumer goods also fell, down 1.2 percent in the month with construction supplies up only 0.1 percent that follows March’s 1.7 percent dip in readings that don’t point to strength for construction in general. Selected hi tech is a positive for April, up 0.6 percent with annual growth here at 3.2 percent.
Who will put a stop to Trump’s trade war nonsense? Iowa farm state Senator Chuck Grassley, Chairman of the Finance Committee is just one Republican beginning to sound the alarm on the harm it is already doing to Midwest farmers.
“It’s going to have some impact on the elections, of course,” said Grassley to reporters. “So far, I haven’t seen farmers abandoning Trump, but it’s going to have some impact.”
But Trump isn’t listening to him, he says, so he may have to put his warnings in writing. (Is that a threat?) There will be many more Republicans opposing the tariffs. Trump can’t afford to lose the support of those ‘free trade’ Senators or their Midwest supporters, in other words.
Harlan Green © 2019
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