Goldman Sachs: As long as consumers keep shopping, there’s hope for the economy

Shoppers carrying bags walk up Fifth Avenue in New York City. 

David Goldman | Getty Images
Shoppers carrying bags walk up Fifth Avenue in New York City.

For a market that’s become increasingly jittery over the U.S. economy, Goldman Sachs has a message: All is not lost.

Wall Street’s head-spinning volatility, which last week shaved more than 1,000 points off the Dow Jones Industrial Average, has pushed stocks into correction territory and raised fears for 2019. Although falling stocks and rising interest rates will continue to weigh on sentiment, those negatives are likely to be offset by higher wages and oil prices in retreat, Goldman said in a research note to clients Saturday.

“Three of the key drivers of consumer spending send a positive message for the near-term outlook,” the bank’s analysts wrote.

“First, real disposable income is likely to continue its strong growth due to accelerating wage growth, and recent declines in the oil price are likely to be a significant tailwind to spending in 2019,” Goldman said. November’s jobs data released on Friday showed lower-than-expected payrolls growth but wages growing at the fastest rate in nearly a decade.

“Second, the saving rate looks elevated relative to the high level of household wealth, even after the recent sell-off,” the analysts wrote. And with consumer spending — which comprises 2/3rd of the vast U.S. economy — still strong, “consumer sentiment is likely to stay elevated, reflecting strong underlying economic fundamentals as well as optimism about the labor market and income growth,” the firm said.

Jobs numbers show economy slowing to a more gentle growth, says economist

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Goldman’s relatively upbeat assessment came against a backdrop of a market buffeted by internal and external risks — most notably the U.S.’ ongoing trade war with China. The Dow has erased its gains for the year, while the S&P 500 pulled back 2.3 percent to 2,633.08 and turned negative for the year.

The bank acknowledged that those sharp losses will translate into “some near-term restraint on spending,” as well as consumer lending. Rising interest rates will also dampen the outlook, the bank said, adding that growth will gradually decelerate from 2.8 percent in the first quarter to an average of 2.4-to 2.5 percent over 2019.

In a somber assessment of its own on Friday, Morgan Stanley forecast the market would remain “range bound” in 2019, citing “the elevated risk of an earnings recession. We expect topline growth to decelerate (due to decelerating GDP) and margins to come under pressure.”

With the Federal Reserve and the European Central Bank pulling back on loose money policies, “the good news is that tightening may be coming to a pause/end early next year which could bring relief to global asset prices particularly if China growth stabilizes,” Morgan Stanley’s analysts wrote.

Still, economists point to the sharp drop in crude prices, which recently fell below $50 per barrel, as a boost for consumers.

“The recent declines in the oil price, the high savings rate, and strong consumer sentiment, largely offset the drag from recent stock price declines, tightening lending standards, and higher rates,” according to Goldman.

“The bottom line is that even after recent declines in the equity market, we continue to expect strong but decelerating consumption growth over the next few quarters,” the bank said.

[“source=gsmarena”]

Bridge to nowhere? Some doubts on U.S. economy justified, doom and gloom is not

Getty Images
Wall Street scurrying for the exits? More and more investors apparently see the economy becoming a bridge to nowhere.

Just a few months ago, investors drove the U.S. stock market SPX, -2.33%  to an all-time high. Now they’re scurrying for the off-ramp and showing fresh doubts about economy. Have things really gone south that fast?

Not really.

The economy is forecast to grow at an above-average speed of 2.6% in the fourth quarter, for one thing. Consumer confidence is at a two-decade high. The unemployment rate remains at a 49-year low. And the holiday shopping season is shaping up to be a big one.

Still, some warning signs have emerged.

Home sales have softened after a rise in mortgage rates. Corporate investment has tapered off. Job creation slowed in November. And a festering trade dispute with China and resulting tariffs have raised costs for businesses and consumers.

“It’s becoming clearer by the day that the best days for this economic cycle are behind us,” asserted Scott Anderson, chief economist of Bank of the West.

The sudden shift in perception is forcing the Federal Reserve to reconsider how many times it will raises interest rates in the next year.

Not only does the economy seem a touch more vulnerable than it did a few months ago, a recent upturn in inflation also appears to have crested. The Fed has been gradually raising rates to head off an unwelcome increase in rates, but now the problem seems less urgent.

One sign came last week in a weaker-than-expected November employment report. The economy added just 155,000 new jobs — well below the 190,000 forecast — and the yearly increase in hourly wage growth stood pat at 3.1%.

More evidence might emerge this week. The consumer price index, which tracks the cost of living, could show a flat or even negative reading for the first time in eight months. The annual rate of inflation as measured by the CPI could drop to a nine-month low of 2.2% from 2.5%

Similarly weak readings are likely in other inflation barometers for wholesale U.S. goods and imported products.

What’s a common thread?

Falling oil prices . A surge in petroleum helped fuel an upturn in inflation earlier this year that spurred the Fed to raise U.S. interest rates three times. Now lower oil prices are acting as a brake on inflation.

Lower oil prices CLF9, +1.24%  will probably deliver seemingly disappointing retail sales in November.

Americans spent a lot less filling up at gas stations, making it look like retailers had a bad month. Economists polled by MarketWatch predict a lackluster 0.2% increase.

“Here’s a word of advice on anyone planning to use the November retail sales report as a guide to how the holiday shopping season is going: don’t,” said chief economist Richard Moody of Regions Financial.

[“source=forbes]

Climate change will cost economy hundreds of billions of dollars, government says in sweeping report

Bob Richling carries Iris Darden as water from the Little River starts to seep into her home on September 17, 2018 in Spring Lake, North Carolina. 

Bob Richling carries Iris Darden as water from the Little River starts to seep into her home on September 17, 2018 in Spring Lake, North Carolina.

Climate change will cost the U.S. economy hundreds of billions of dollars by the end of the century, damaging everything from human health to infrastructure and agricultural production, according to a government report issued on Friday.

The White House dismissed the congressionally mandated reported as inaccurate.

The report, written with the help of more than a dozen U.S. government agencies and departments, outlined the projected impact of global warming in every corner of American society, in a dire warning that is at odds with the Trump administration’s pro-fossil-fuels agenda.

“With continued growth in emissions at historic rates, annual losses in some economic sectors are projected to reach hundreds of billions of dollars by the end of the century – more than the current gross domestic product (GDP) of many U.S. states,” the report, the Fourth National Climate Assessment Volume II, said.

Global warming would disproportionately hurt the poor, broadly undermine human health, damage infrastructure, limit the availability of water, alter coastlines, and boost costs in industries from farming, to fisheries and energy production, the report said.

[“source=cnbc”]

A US pivot to Europe would boost the economy and national security

French President Emmanuel Macron welcomes U.S. President Donald Trump for bilateral talks at the Elysee Palace in Paris on Nov. 10, 2018.

The sales of American goods to Europe — nearly a quarter of the total — are three times larger than sales to China. That’s shown by the U.S. trade numbers for the first nine months of this year.

Over that period, American exports to Europe were soaring at an annual rate of 13 percent, while sales to China were marking a mere 3.2 percent increase from the nine months of last year.

But the most important difference is this: The U.S. trade deficit with China was more than double the American trade gap with Europe.

One could take that a bit further. U.S. export sales to Europe in the first three quarters of this year were growing twice as fast as those to the entire Pacific Rim.

Not bad for that oft-derided “sclerotic” Europe holding its own — and then some — with the Pacific Rim tigers free-riding on their huge, and growing, U.S. trade surpluses. In fact, the Pacific Rim countries accounted for 60 percent of America’s total trade deficit in this year’s January-to-September interval.

Europe is open

Those numbers may surprise some as an entirely counter-intuitive outcome because one would normally expect the U.S. exports to China, and the rest of the Pacific Rim, to grow much faster than American sales to Europe.

Why? Simply because the Pacific Rim economies are growing at a rate of 5 percent — with China marking a 6.7 percent growth in the first three quarters of this year — while Europe is barely eking out 2 percent GDP growth.

In spite of that, the U.S. is doing much better in the slow-growing European markets than in the strongly expanding markets routinely called by raving observers as the “future of the world economy.”

What’s the problem? Why is the U.S. taking a beating in markets where it should be making a mint?

Here is a thought: Isn’t that part of what U.S. President Donald Trump never tires of calling a “rip-off” of the U.S. economy? A decades-old outrage neglected and tolerated by Washington?

And does that strike you like something Trump is trying to stop and reverse with his “free, fair and reciprocal trade” amid a chorus of catcalls — led by official international organizations richly funded by Washington — that he is killing the so-called “free and multilateral” trading system?

The answer seems clear. The U.S. is selling more to the lackluster European economies than to the Pacific Rim — those “dynamic” Asian economies — because the European markets are much more open and accessible to American companies.

So, the trade policy conclusion for Washington should be a proverbial “no brainer.” Just tweak a few things with Europeans to even out the playing field. The Pacific Rim, however, is an entirely different story.

That’s where the U.S. needs a root and branch review of tariff and non-tariff trade barriers, trade practices, comity and basic rules of reciprocity.

Germany should not destabilize Italy

Hopefully, there is enough bipartisanship left in Washington to support such vitally important trade policy changes initiated by the present administration.

Meanwhile, there are things the White House can do on its own.

For example, Washington should stop Germany from repeating a Greek tragedy in Italy. Unless that is done forthwith, there is no sense for the U.S. to foot three quarters of a bill for the largest military and political alliance the world has ever known.

The U.S. economic and financial authorities know everything they need to know about the Italian budget for 2019 — an entirely appropriate counter-cyclical fiscal policy well within the euro area budget rules. But Germany, with France in tow, seems hellbent on using its own reading of that budget as a pretext for destroying the Italian economy and its democratically elected government. That is a pathetic example of how far the sinking governing elites are ready to go to fight their opponents in the elections to the European Parliament scheduled for May 2019.

Washington has been there before. In July 2015, the U.S. helped France keep Greece in the euro area, saving that long-suffering country from economic and political destruction. Working together, Washington and Paris squashed the German plan for throwing Greece out of the monetary union.

One can now see how important it was to keep Greece functioning. The Greeks are hosting huge assets of a U.S.-led alliance controlling the Eastern Mediterranean and battlefield operations in the Middle East.

Italy is equally central to U.S. national security. The country has many allied military installations, with command headquarters in Naples and a new hub in Sicily covering the Mediterranean, North Africa, Middle East and most of the Balkans. None of that is compromised by Italy’s right-of-center government. On the contrary, Italy remains an unquestionably loyal alliance member.

Apart from the urgent task of shielding the military alliance from German mischief, the U.S. should also nudge Berlin toward a more balanced economic growth that would benefit its euro area partners and expand European markets for American goods and services.

Investment thoughts

“Don’t neglect Europe” could have been an echo of history that Trump was hearing while visiting the American Military Cemetery and Memorial on Mont Valérien in one of the western suburbs of the French capital on Sunday.

But the “strong Europe” he says he wants needs some work. Arguably, trade problems should be the easiest part. Their solution can be readily found in the family of nations sharing the same values and social foundations.

On economic policies, it is essential to ween Germany off its selfish and excessive export gravy train. Living so grandly off its closest friends and partners should finally give a pause for thought to German leaders — an injunction repeatedly proffered by Germany’s former go-to Chancellor Helmut Schmidt.

A significant adjustment to Germany’s traditional export-led growth would give Washington better balanced trade accounts, it would strengthen America’s presence in Europe, and it would pave the way for a deeper trans-Atlantic economic and political integration.

The Pacific Rim is a much more complicated story. After the last week’s conference with China’s high-level emissaries, Washington should have no illusions about any meaningful breakthroughs in diametrically opposed U.S.-China economic, political and security relations.

[“source=cnbc”]

Japan’s prime minister calls for public works spending program to help lift the economy

Japanese Prime Minister Shinzo Abe at a press conference at the Kremlin on May 26, 2018 in Moscow, Russia.

Japan’s Prime Minister Shinzo Abe called on Monday for a new public works spending program to stimulate the economy amid growing concerns about global risks.

The spending, which is expected in the first half of next fiscal year starting in April, will focus on strengthening infrastructure to withstand earthquakes and frequent flooding, according to a presentation made at the Council on Economic and Fiscal Policy (CEFP).

Some of Japan’s top government advisors also called for stimulus to offset a decline in consumption expected after an increase in the nationwide sales tax in October next year.

The rush to approve public works spending and other measures to support consumption highlights growing concern among policymakers about the economy.

“The prime minister asked me to take firm measures to ensure that our economic recovery continues,” Economy Minister Toshimitsu Motegi said at the end of the CEFP meeting.

“He also said the public works spending program expected at the end of this year should be compiled with this point in mind.”

Japan’s economy is forecast to contract in July to September, and a recent slump in machinery orders suggests any rebound in the following quarters is likely to be weak if exports and business investment lose momentum.

Government ministers will compile a preliminary public works plan by the end of this month and then submit a final version of the plan by year’s end, according to documents used at the CEFP meeting.

Members of the CEFP did not say how large spending should be or how the government should fund the package. At the meeting Abe said compiling the package has become an urgent matter, according to a government official.

Japan’s government is considering a 10 trillion yen ($87.77 billion) stimulus package to offset the impact of a sales tax hike next, sources told Reuters last week, as concerns about consumer spending and the global economy grow.

Increasing spending on public works started to gain support after a strong earthquake in September caused a blackout in the northern island of Hokkaido and a series of typhoons damaged transport infrastructure in western Japan.

The advisers on the CEFP are academics and business leaders who are considered close to Abe, so their recommendations often influence policy decisions.

The CEFP met earlier on Monday to debate consumer prices and fiscal policy, which is where the advisers made their recommendations.

The advisers did not lay out the specific steps the government should take to stimulate consumption, but government officials have previously said they are considering shopping vouchers for low-income earners and more spending on public works.

The nationwide sales tax is scheduled to rise to 10 percent in October 2019 from 8 percent currently.

The government already plans to exempt food and some daily goods from the tax hike to soften the blow, but there is still a lot of concern that the tax hike will wreck consumer spending and sentiment. The economy was tipped into a recession the last time the tax was raised in 2014.

Advisers at the CEFP meeting also threw their support behind the government’s plan to encourage mobile phone carriers to lower smartphone fees, saying they hoped the move would increase households’ disposable incomes.

[“source=cnbc”]

Germany’s economy is getting hammered by the rest of the world’s problems

thumbs down germany

A US trade war, Brexit, Italy — you name it, Germany’s economy is suffering from it.

Europe’s economic powerhouse is in one of the longest boom phases of the postwar period, but it’s being pounded by a cocktail of international events that ING Economics says is casting doubts on future growth.

Germany’s Council of Economic Experts also paints a not-so-rosy picture: It expects 1.6% growth for the country this year and only 1.5% in 2019, well below expectations and down from a bumper 2.2% in 2017. Geopolitical issues were at the forefront of the council’s findings.

“The uncertain future of the global economic order and demographic change present the German economy with major challenges,” the council’s chairman, Christoph M. Schmidt, said in a report published Wednesday. “That is why we are faced with important economic policy decisions.”

Trade-war fears, ongoing Brexit negotiations, and the continued crisis surrounding Italy’s budget are all dragging on the German economy. That’s not all: “Temporary production-related problems and capacity bottlenecks are dampening the pace of expansion,” the report said.

Europe’s largest exporter has also seen trade out of the country fall dramatically, with exports dropping 0.8% month-on-month in September. Exports could continue to suffer in the event of a no-deal Brexit or new tariffs on autos out of the US as part of US President Donald Trump’s trade war. Export numbers dropped in four of the past six months and business confidence has been waning as investment opportunities weaken on geopolitical uncertainty, ING said.

Automakers are suffering, too

Germany’s malaise dampened the results of auto giants such as BMW. Third-quarter operating profit plunged 27% amid greater competition in global markets. The Financial Times reported Wednesday that new European Union greenhouse-gas emissions targets for automakers — the EU seeks to reduce emissions by 30% — are behind a 0.1% contraction in Germany’s gross domestic product in the third quarter as car companies struggle to adapt.

In addition, potential Trump tariffs on China are a major issue for Daimler and BMW, which both build SUVs in the US for the Chinese market.

Researchers from UBS say economic risks are predominantly external but warn that deteriorating labor-market conditions could have an impact. The country’s aging population could also prove to be problematic going forward unless more immigration and improved working flexibility are encouraged across the German economy, according to the economic council.

[“source=cnbc”]

China says exports to US rising ‘because American economy is strong and they want to buy our products’

China’s exports to the United States are still growing, thanks to a strong American economy and consumers’ preference for Chinese products, China’s ministry of commerce said on Monday.

The delivery of previously placed orders and “front-loading” by Chinese shippers also contributed to a robust performance so far this year, the ministry concluded in a report reviewing and forecasting China’s trade performance.

As such, the impact of the US trade war on China’s trade and broad economy will be “limited” with “total risks under control”, the ministry concluded in the report.

“The United States unilaterally provoked economic and trade friction, which not only affects Sino-US trade but has also brought significant uncertainties to the development of global trade and investment,” the ministry said.

China’s exports to the US rose 13.3 per cent in the first 10 months compared with a year earlier while its imports from the US increased by 8.5 per cent in the same period, according to China customs data. In October alone, Chinese exports to the US rose by 13.2 per cent while its imports from the US fell 1.8 per cent, earning Beijing a trade surplus of US$32 billion last month.

According to Beijing’s commerce ministry, strong demand for imported products in the US – the result of low unemployment, robust growth and good consumer confidence – is a fundamental factor helping China to sell to the US despite tariffs imposed by US President Donald Trump.

In addition, the industrial chains of China and the US are “closely integrated” and the two countries’ economic structures are “highly complementary”, the ministry added.

The US imposed 10 per cent tariffs on US$200 billion worth of Chinese products in late September – a rate set to rise to 25 per cent in January if Beijing does not make concessions.

The measures followed an initial round of tariffs on US$50 billion worth of products.

China has responded in a tit-for-tat manner by imposing tariffs on US imports.

While China’s export data looks solid for now, many economists said the impact of the trade war would start showing up in the first or second quarter of next year, adding to the woes of an economy that is already growing at its slowest pace in a decade.

China’s trade ministry also said that the country “faces both severe challenges and presents new development potential” next year and that the ministry would work hard to ensure a “steady” trade situation.

President Xi Jinping is set to meet Trump at the G20 leaders summit in Argentina next month in the hope of easing trade tensions.

Speaking at China’s first imports expo in Shanghai last week, Xi said China would buy more goods and services from abroad, saying the country’s purchases of foreign goods would be worth US$30 trillion over the next 15 years.

Xi also announced the country would buy US$10 trillion worth of foreign services in the same period.

Analysts expect the trade war will see China importing more from other countries as it reduces tariffs. However, China’s growth is likely to slow further in the coming months as the trade war takes its toll.

In response – amid signals that policymakers are increasingly nervous about the outlook –, the government has launched a series of measures to support the economy, including cutting individual taxes, speeding up infrastructure spending and extending additional financing options to help struggling smaller companies.

China’s exports to the United States are still growing, thanks to a strong American economy and consumers’ preference for Chinese products, China’s ministry of commerce said on Monday.

The delivery of previously placed orders and “front-loading” by Chinese shippers also contributed to a robust performance so far this year, the ministry concluded in a report reviewing and forecasting China’s trade performance.

As such, the impact of the US trade war on China’s trade and broad economy will be “limited” with “total risks under control”, the ministry concluded in the report.

“The United States unilaterally provoked economic and trade friction, which not only affects Sino-US trade but has also brought significant uncertainties to the development of global trade and investment,” the ministry said.

China’s exports to the US rose 13.3 per cent in the first 10 months compared with a year earlier while its imports from the US increased by 8.5 per cent in the same period, according to China customs data. In October alone, Chinese exports to the US rose by 13.2 per cent while its imports from the US fell 1.8 per cent, earning Beijing a trade surplus of US$32 billion last month.

According to Beijing’s commerce ministry, strong demand for imported products in the US – the result of low unemployment, robust growth and good consumer confidence – is a fundamental factor helping China to sell to the US despite tariffs imposed by US President Donald Trump.

In addition, the industrial chains of China and the US are “closely integrated” and the two countries’ economic structures are “highly complementary”, the ministry added.

The US imposed 10 per cent tariffs on US$200 billion worth of Chinese products in late September – a rate set to rise to 25 per cent in January if Beijing does not make concessions.

The measures followed an initial round of tariffs on US$50 billion worth of products.

China has responded in a tit-for-tat manner by imposing tariffs on US imports.

While China’s export data looks solid for now, many economists said the impact of the trade war would start showing up in the first or second quarter of next year, adding to the woes of an economy that is already growing at its slowest pace in a decade.

China’s trade ministry also said that the country “faces both severe challenges and presents new development potential” next year and that the ministry would work hard to ensure a “steady” trade situation.

President Xi Jinping is set to meet Trump at the G20 leaders summit in Argentina next month in the hope of easing trade tensions.

Speaking at China’s first imports expo in Shanghai last week, Xi said China would buy more goods and services from abroad, saying the country’s purchases of foreign goods would be worth US$30 trillion over the next 15 years.

Xi also announced the country would buy US$10 trillion worth of foreign services in the same period.

Analysts expect the trade war will see China importing more from other countries as it reduces tariffs. However, China’s growth is likely to slow further in the coming months as the trade war takes its toll.

In response – amid signals that policymakers are increasingly nervous about the outlook –, the government has launched a series of measures to support the economy, including cutting individual taxes, speeding up infrastructure spending and extending additional financing options to help struggling smaller companies.

[“source=cnbc”]