September 30, 2019 — Economic Data Begins to Falter


Government data for August and September released last week indicate the economy is starting to slow.

Consumer spending was up only 0.1% in August; worrisome as it accounts for more than two-thirds of US economic activity.  Data for July was revised down by 0.1%, from 0.6% to 0.5%.  Year over year consumer spending was up 1.4% in the second quarter of 2019. Tariffs on Chinese goods have now widened to include consumer goods, which means spending could slow more in the upcoming months.

Consumer confidence fell in September to 125.1 from 134.2 in August, coming in far lower than the 133.5 analysts expected.  This was the largest drop in nine months.  The pessimism is attributed, in part, to the escalation in trade tensions between China and the US.

New orders for US-made capital goods fell in August indicating continuing weakness in business investment, after it declined at its steepest pace in 3.5 years in H2 of this year. Once again, the culprit is the government’s 15-month trade war with China.

Consumer prices, measured by the personal consumption index (PCE), didn’t move in August.  The PCE index rose 0.2% in July and is up 1.4% for the running twelve months. The core PCE is the preferred way for the Fed to measure inflation and remains below the 2% target.

The trade dispute is posing an ongoing risk to economic expansion.  If the Trump administration can manage to broker a deal with China, maybe everything can get back on track?