It’s hard to see alternate sources of economic growth, warns Caroline Baum.
The consumer literally carried the U.S. economy in the second quarter of 2019. While business and residential investment, net exports and inventories all declined, real personal consumption expenditures rose at a 4.7% annual rate, the largest increase in 4 1/2 years, contributing 3.1 percentage points to the 2% real gross domestic product growth.
Alternative sources of growth Without consumer spending to steady the ship of state, it’s hard to see alternate sources of economic growth. That index rebounded 10.4 points in August to 135.7, the highest reading of the year. The present situation index, which reflects respondents’ appraisal of current business and labor market conditions, jumped to its highest level in almost 19 years. The expectations index posted a modest decline.As it turns out, the message — in this case, a warning sign — is contained in the divergence between the two surveys, according to economists at Deutsche Bank Securities.
Feeling good To be sure, consumers have every reason to feel good about their present situation. The unemployment rate is hovering near a half-century low. Wages are rising. The biggest problem isn’t finding a job but finding qualified workers to hire, according to businesses. When the LEI was revamped in 2012, the consumer sentiment component was replaced by “consumer expectations about business conditions,” a hybrid measure that was shown to perform better at turning points, according to Ataman Ozyildirim, senior director of economic research at the Conference Board.
Contrary to frequent flights of “trade optimism” underpinning the stock market, the trade war isn’t about to resolve itself anytime soon.ISM warning The Institute for Supply Management’s manufacturing purchasing managers’ index fell to 49.1% in August, the first sub-50 reading — implying a contraction in manufacturing activity — in three years. All of the sub-indexes except supplier deliveries were below the 50 threshold.
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