Why are Consumers Buying Less?

Financial FAQs

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Wrightson.com

President Trump tweeted this morning that U.S. and China were close to a “really big deal”, and stocks rallied with the S&P up as much as 30 points and the DOW 250 points higher in early trading. Yet both chief economic spokesman Larry Kudlow and OMB chief Mick Mulvaney said there was no agreement on reducing or eliminating the December  tariff increases on Chinese imports of consumer goods.

A report from the Wall Street Journal indicated U.S. trade negotiators are offering to cancel new China tariffs and reduce existing levies on Chinese goods by up to 50% on $360 billion worth of imports.tariff increases on Chinese imports of consumer goods.

So there is no agreement of even a Phase I trade agreement with China, as I said yesterday, which is why inflation has remained moribund for so long. And today’s Producer Price Index for final demand—a term that describes the demand for wholesale prices that go into product prices—confirms that fact. That is the surest sign of falling prices, which is the real measure of economic growth.

It’s a term economists understand, but few others. It measures how much consumers and businesses want and are able to buy, because it filters into retail inflation, the market price consumers pay, which hasn’t risen much above 2 percent, either.

“The November results held the YOY increase in the headline final demand PPI steady at the October level of 1.1 percent,” said Reuters’ ICAP summary, “but trimmed the YOY rise in the narrow core index from 1.5 percent to 1.3 percent.  That is the smallest 12-month increase in the core measure since September 2017.

This tells us why predictions for Q4 GDP growth are now below 1 percent, when third quarter GDP growth was revised slightly upward to 2.1 percent. Falling final demand is a stark result of the toll from an erratic foreign policy that the Trump administration uses to play to public popularity rather than a foreign policy that serves the public interest.

It turns out that reducing tariffs on $360 million Chinese imports would be a good thing for consumers, since consumers are cutting back on spending with fewer imports, and Midwestern farmers’ bankruptcies have skyrocketed due to the lost revenues that combine with record floods decimating crop yields.

Yet Trump seems to be holding out for China to agree to $60 billion in agricultural purchases from farmers, whereas it has historically never been higher than $20 billion per year and is currently just $8 billion. Meanwhile China has gone to Brazil and other countries that grow lots of corn and soybeans to replace that from Trump’s Midwestern constituents. Will those farmers ever recover from their lost revenues that Trump has been replacing with taxpayer money, and that contributes to the $1 trillion annual budget deficit?

So in the end it is Americans who are really paying for the tariff wars that are not in the public interest; which has been obvious for a long time.

Harlan Green © 2019

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

About populareconomicsblog

Harlan Green is editor/publisher of PopularEconomics.com, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
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