Like a stiff tent pole, consumers are keeping the U.S. economy propped up. And it looks like they’ll have to do so for at least the next year.
Strong consumer spending has given the economy a backbone to withstand spine-tingling political fights at home and abroad. Households boosted spending by 4.6% in the spring and nearly 3% in the summer to offset back-to-back drops in business investment and whispered talk of recession.
Companies have been walking on eggshells, so to speak, for the past year as U.S.-China trade tensions reached a crescendo. Tit-for-tat tariffs disrupted supply lines around the world, sapped U.S. exports and contributed to slower economic growth at home and abroad.
Yet even as the U.S. and China are now moving quickly to lower the temperature, a far-reaching compromise on trade rules that ends the standoff is unlikely to be reached anytime soon. For now the two countries are just trying to wrap up a so-called Phase-1 deal.
See: MarketWatch Economic Calendar
The upcoming U.S. presidential election, meanwhile, gives companies even more reason to stay on the sidelines.
A new Deutsche Bank study found that business investment tends to weaken in presidential election years, when companies hold back to assess what tax or regulatory changes might be in the offing.
Read: Trade deficit falls to 5-month low as U.S. becomes a net oil exporter
There’s little reason for firms to take a more aggressive stance in 2020 given an array of plans by leading Democratic presidential contenders such as Bernie Sanders and Elizabeth Warren to increase taxes and regulation if their party recaptures the White House. Further complicating matters is a potential Democratic move in Congress to try to impeach President Trump.
If that’s the case, consumers will have to carry the load. Again.
“Recent trends of soft business investment offset by solid consumer spending therefore looks set to continue into 2020,” Deutsche Bank economists predicted.
There’s good reason to believe consumers can keep doing their part.
Most Americans feel secure about their jobs and income prospects, with layoffs and unemployment at a 50-year low. They’re earning more money, saving more than they used to and are not as burdened by debt. That’s why surveys show consumer confidence remain near post 2008 recession highs.
Read: U.S. jobless claims fall to one-month low of 211,000 — labor market stays strong
The Federal Reserve, what’s more, has pitched in by reducing the cost of borrowing for businesses and consumers three times this year.
The central bank began cutting interest rates in July amid worries about falling inflation and the damage caused by the trade war with China. Rates will probably remain low at least for the next year, especially with inflation lingering below 2%.
Households can only do so much, though.
The once red-hot labor market has shown increasing signs of cooling off. Hiring growth has slowed sharply this year, employees are not working as many hours, wage gains have leveled off and job openings have declined.
“It is reasonable to ask whether, or to what extent, consumers will begin to pull in the reins on spending,” said chief economist Richard Moody of Regions Financial.
A decline in retail sales in September — the first in seven months — has more economists asking that question. But for now the September surprise is looking like an aberration.
A closely followed survey compiled by Johnson Redbook, for example, showed that sales at retail stores open at least 12 months rose 5.7% in October, marking the highest level in almost a year. And auto sales looked to have rebounded last month.
Wall Street DJIA, +0.02% SPX, +0.26% will get the answer on Friday when the government publishes retail-sales figures for October.
“Consumer spending is not growing as fast, but it’s still growing,” Moody said.