Spending on imports

Posted by: Paul Donovan

26 Nov 2019
  • US retail sales data should show consumers are still willing to pursue happiness in the shopping mall. The strength of the labor market gives confidence – spending on durable goods has remained firm. People rarely indulge in higher value purchases if they are not confident in the future.
  • The US trade deficit is likely to stay at recent inflated levels. It signals that Americans are able to enjoy a higher standard of living than their own efforts would merit. The export of Treasury bonds overseas is funding this situation. Deficit financed tax cuts help explain the growth of the trade deficit. As the tax cuts did not (generally) fund investment, this is unlikely to be self-correcting.
  • Despite the rising US trade deficit, there are reports of declining global trade volumes (the data is an estimate). Trade taxes should have a declining direct impact on global trade, as companies use different routes to evade the taxes. However, investment is a large share of global trade, and trade uncertainty hit investment hard. That creates a feedback, slowing trade volumes.
  • German consumer sentiment numbers are due. The data has shown weaker intention to spend. The reality is that German consumers have been happily spending more.

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