Shutdown clouds prospects for consumer-driven US economic growth
NEW YORK (Reuters) – Following tax cuts, rising revenues and floating stock markets rejected a consumer boom in 2018, suggesting that the main engine of US economic growth could sputter, and a record long government shut down further muddies of water.
FILE PHOTO: A federal worker left unpaid or furloughed collecting a free bag from Kraft Foods on the 27th day after the partial government shutdown in Washington, January 17, 2019. REUTERS / Joshua Roberts / File Photo [19659003] Federal Reserve officials And many economists have long been counting on robust spending spending to keep the economy together, despite headwinds from recent financial markets, turbulence, trade conflicts, and global growth.
Now they fear that the consumer boom could be due to a reversal.
The warning signs span the revenue spectrum – from the well heel, possibly cut back after their stock was hammered in the fall, to the poor who were possibly squeezed if a long-term government shutdown delayed food aid payments.
Economists are also not sure whether last year's personal income tax will lead to higher refunds and increase the purchase of large tickets, such as household appliances, typical of this time of year, or whether the fall has already been spent last year when wage control was rejected.
The suspension, now in its 28th day, could delay repayments and hit companies that trust consumers to spend a portion of their money on their goods or services.
Chief Financial Officer of T-Mobile USA told investors last week that any delays in repayment were a concern for the company because the prepaid business, about 30 percent of the sale, was "particularly sensitive" to tax repayment.
"Hopefully this situation does not go too long," said J. Braxton Carter.
A delay in refunds may also damage home improvement chains, such as Home Depot, Lowes Cos Inc and Wayfair Inc who see furniture purchases and early on our projects increase sales. "We see no significant impact," said a Home Depot spokesman without elaborating. Lowes and Wayfair did not respond to a request for comment.
The closure of the government pushes the outlook for spending, retailers and the economy as a whole because managers and decision-makers do not weigh the direct effect of 800,000 federal workers without pay, but also how much it can harm consumer and business understanding.
Chicago Federal Reserve President Charles Evans said last week that while the immediate effects of the closure of the US $ 20.7 trillion economy would be small, the indirect psychological effect could be significant.
"Consumers are risk-averse and begin to fold down, businesses are starting to plan to do less, and you're starting to magnify these effects," Evans said.
Former Federal Reserve Manager Janet Yellen noted a general downturn in business sentiment at a New York retail store last week. "We hear anecdotal reports about companies that are starting to wait for investment plans due to uncertainty," she said. These investments may include things like upgrades to a reseller supply chain, Yellen said.
Constance Hunter, CFO of KPMG, told Reuters if the termination continues until the end of the month "we will shave a couple of percentage points from the first quarter (gross domestic product)."
Such concerns have spread among Fed officials who are now talking patience before considering further interest rate increases.
FAST FOOD, GROCERS AT RISK
Consumer spending accounts for about two-thirds of US economic activity and 4 per cent in household spending on goods last year was an important reason why the economy probably grew by a healthy 3 per cent in 2018. More recently, strong consumption has offset weaker than anticipated business investment and trading pulls, and expected to reduce the declining impact of Trump's previous spending tensions.
Economists had already expected higher interest rates and trading tensions to reduce household spending on goods and services after having hit $ 13 trillion last year.
The question is how much and the conclusion made the answer more difficult.
Steven Blitz, US economy in TS Lombard, said the economy seemed to slow down and noted reports from Macy, Nordstrom and other dealers who spoke of a weak December, and he expected the closure to hurt growth in the first quarter.
"Some of it will return in the second quarter, but there will be some industries that will see lasting damage as restaurant operators," he told Reuters.
These will include chains such as McDonald's Corp, Chipotle Mexican Grill and Starbucks Corp, which analysts said, will not be able to make up for lost sales to government workers during a closure.
Companies did not immediately respond to a request for comment.
Brian Cantor, CEO of Alvarez & Marsal's Detail Improvement Negotiating Group, said grocery chains, including Walmart Inc and Kroger, could feel the pinch of weaker discretionary spending. While food sales will persist, typical additional purchases such as batteries, chips, leaves, or chocolate will suffer, increasing profit margins.
hooker CEO Rodney McMullen expressed this concern last week on a merchandise program. "From the customer's point of view, they feel incredibly good about the economy, but very nervous about where are things going," he said.
Walmart declined comment.
Small, independent dealers who often serve low-income groups may also suffer.
While the administration has secured funding through February for the transfer of state transfers to the Full Enterprise Support Program (SNAP), which provides food assistance to 19 million low-income households, the closure has weakened the allocation of new licenses and renewals.
Peter Larkin, President and CEO of the National Grocers Association, sent letters to Congress on January 10, saying that the closure prevents many independent dealers from obtaining SNAP licenses for their newly opened stores, and that more than 2,500 retailers have experienced a loss or inability to authorize the license.
"The inability to acquire new SNAP licenses for newly opened or purchased stores can have significant negative effects on local economies," Larkin said.
Reporting of Nandita Bose in New York and Howard Schneider in Washington; Additional reporting by Anna Driver in New York; Editing by Dan Burns and Tomasz Janowski