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Home / Business / Revenues from the companies show that the trade war is beginning to strain the US economy

Revenues from the companies show that the trade war is beginning to strain the US economy

A shopper is seen in a Target store in Brooklyn's New York district.

Brendan McDermid | Reuters

Looking for reasons to be optimistic about the US economy? Try the finishes.

Target's stock rose more than 20% to a record $ 103 per share Wednesday after the retailer reported a 17% jump in second-quarter profits, higher sales and a healthier full-year outlook such as its large same-day delivery and store pickup attracted more customers.

The reseller and some of Walmart's major competitors are prominent in what is designed to be a smooth revenue season for US companies on the whole. The S&P 500, with more than 94% of companies reporting recent quarterly earnings, is well on track to a 1

.2% quarter-over-year increase from the previous year, according to data collected by Refinitiv as of Wednesday afternoon. Sales at the top 500 listed US companies increased by an average of 4.7% in the last quarter, the slowest growth since the third quarter of 2016.

Unwelcome news

The results are unwelcome news at a time of stock volatility in the market, and As forecasters trim the outlook for economic growth, trade tensions intensify and increase the cost of imported goods, and economists scratch their heads to find out if we are heading for a downturn.

"We have reached a very high plateau, but it is a plateau," said David Kelly, chief global marketing strategist at J.P. Morgan Asset Management. "The economy is declining."

The US economy expanded by 2.1% in the second quarter, the lowest rate since the first quarter of 2017, and down from 3.1% in the first three months of this year. Federal Reserve members expressed concern last month about weak sectors of the economy such as industry. They said that trade uncertainty amid the look-and-go trade battle with China, coupled with global growth concerns, continues to "weigh on business confidence and corporate investment plans," according to a report from the Fed's July meeting.

at that meeting, the Federal Reserve lowered interest rates for the first time in ten years, but the report released Wednesday said the move should not be viewed as a "preset rate" for future cuts, meaning companies may not be able to count on loans at lower interest rates.

But strong job growth, rising wages – if slow – and robust consumer spending provide fuel to the economy and some pockets of strong earnings.

"The economy does not look like it is heading into a recession because the consumer is still strong," said Jeremy Zirin, head of US equities at UBS Global Wealth Management & # 39; s Chief Investment Office.

Consumers continue to spend but growth has slowed

US consumer spending, which runs the bulk of the economy, is growing, but at a slower pace. In June, US consumer spending rose 0.3%, down from the 0.5% monthly increase posted in May, the Department of Commerce said late last month. But a number of retailer earnings reports show that companies are still growing while their weaker competitors are struggling as US consumer shopping habits continue to shift.

"The underlying American consumer is doing well, earning more money, they're hiring, and more importantly, they're spending more money," Bank of America CEO Brian Moynihan said in an interview on CNBC Tuesday, adding that the bank's own customers spend more. "The American consumer continues to spend, and it will keep the US economy in good shape."

U.S. Airlines, such as making money from flying passengers and from selling miles of frequent flights to banks that offer rewards to customers who use co-branded or other rewards credit cards, are on the run for a tenth consecutive year of profitability. Leaders at major carriers said last month's revenue talks that the strong US economy helped them increase revenue.

Not all dealers are equal

But the prey is not spread equally.

At retail, big-name stores such as Target and Walmart, which invested in their companies to better leverage Amazon, have shown strong results.

"There are clear winners and losers in the industry today … and the winners are companies that Target invests in stores," Target CEO Brian Cornell said in a media call after reporting Wednesday's earnings. He did not name companies, but said it is "stockholders" that help Target's performance.

Stores that anchor American malls such as troubled JC Penney and Macy's continue to struggle as fewer consumers seek out such large shopping complexes to purchase clothing, accessories and other goods. Instead, one-stop shopping destinations like Target and Walmart appeal to more consumers with their up-to-date brands, a wide selection of national labels, fast delivery options and properties spread across the United States, bringing them closer to customers' homes. [19659002] JC Penney's shares last month fell below $ 1, putting the risk of being delisted by the New York Stock Exchange.

"These retailers exemplify the confusion that goes on in the retail trade between major chains, mall-based malls and mall-based retailers facing chronic traffic declines," said Retail Metrics founder Ken Perkins. He said many apparel chains are still "struggling."

Urban Outfitters this week reported a 35% decline in second quarter earnings and slower sales. L Brands, parents of the underwear company Victoria & # 39; s Secret, made profits than expected this week, but weaker sales. Barney's New York filed for bankruptcy protection this month, saying it planned to close stores in Chicago, Las Vegas and Seattle.

Even leaders in companies that are doing well are cautious. Home improvement giant Home Depot beat its revenue projections this week, but trimmed its outlook because of its potential impact on business.

Weak notes

However, there are weaker notes in the economy.

Lower fuel prices have harmed the energy company's performance in the last quarter, while global trade tensions, weaker growth and tariffs weigh on the materials and industrial sectors. Boeing's 737 Max crisis stemming from two fatal crashes caused the company to post its biggest loss ever in the second quarter. It has also slowed production and stopped deliveries, affecting several suppliers, including already struggling General Electric, which makes engines for the beleaguered jets with its French joint venture partner Safran.

"I think it's always better when the economy shoots at all four cylinders," said Kate Warne, chief strategist at Edward Jones, who noted that companies in general "have had more headwinds this year."

weak compared to last year, when large companies reported an increase in profits after the big corporate tax cut, she said.

Fragile Business Confidence

As profits have recovered in the ten years since the US came out of recession, workers demand better wages and benefits, forcing some companies to pay higher wages, just as companies try to expand their bottom lines more.

"The level of earnings is spectacular, but it is very difficult for companies to increase revenue from this," said J.P. Morgan & # 39; s Kelly. "When you go to very high levels of profits, everyone knows the workers, and the demands to 'pay me more, or I quit,' tend to grow."

What you have to keep up with is business confidence, even more than consumer confidence, because it will dictate future employment levels, he added.

"There is some fragility around business confidence. We think we will avoid a recession, but it will be a closer conversation," Kelly said.

CNBC's Lauren Thomas and Jasmine Wu [19659037] contributed to this report.

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