Economic Preview: A little more sun is shining on a cloudy U.S. economy, but the skies aren’t all clear yet
Is the sun peaking through the clouds that have been gathering over the U.S. economy? It sure seems so.
Interest rates have fallen and fueled a rebound in auto and home sales. The unemployment rate has skidded to a 50-year low of 3.5%. A key measure of how Americans fell about their own financial health rose to a three-month high. And to cap it off, news of at least a tentative trade deal between U.S. and China announced Friday have pushed stock markets close to record highs again.
More good news could come this week from the sum of retail sales in September. Economists polled by MarketWatch predict sales rose a steady 0.3% during the month.
Consumer spending has the biggest influence of all on how fast the U.S. economy grows and retail sales are a big part of that. Sales of new cars and trucks were strong in September, likely more than offsetting a decline in gas-station receipts tied to lower fuel prices.
Robust car sales tell us a lot about the economy. Buyers only make big purchases when they are confident about their job security and their ability to make their monthly payments.
“The tightening of trade terms around the globe and the uncertainty surrounding trade negotiations are the main reasons for the spreading malaise,” economist at Northern Trust wrote.
The spat has also dampened U.S. business investment — another key driver of economic growth — and kept a lid on the stock market. The recent rally has been fueled largely by hopes of a deal.
Yet even a partial deal or warmer relations with China probably won’t be enough to reignite U.S. and global economic growth, at least not anytime soon. After so many abrupt turns in trade talks, Wall Street is sure to take a wait-and-see attitude once the initial euphoria wears off.
“It is difficult to take that much comfort from the latest signs of progress given that we’ve had plenty of apparent truces in recent months end abruptly in a sudden further escalation in trade tensions,” pointed out senior economist Michael Pearce of Capital Economics.
U.S. stocks notched significant gains Friday, though they closed off session highs, after news that the U.S. and China had reached an agreement to ease trade tensions that includes the elimination of at least some planned tariffs.