Sentiments Toward a Renewed Focus

Jack of all trades…

Trade drama has been making headlines for a while and things have escalated quickly over the last two weeks. We have had outstanding trade issues with various different major trade partners over the last few months. This week, Trump agreed to lift tariffs on metal imports from Canada and Mexico while postponing his decision to impose tariffs on automobiles from Japan, the European Union, and various other countries for six months. This leaves all the attention on China. Latest news on this front – these trade talks have come to a standstill. Oh good. 

Moral of the story: Improving trade agreements was a large part of Trump’s campaign platform and the quickly approaching presidential election seems to have impacted the intensity of the administration’s approach toward reaching a favorable deal with China. In the long-run, I think a renewed trade agreement with China is going to be beneficial for the US economy, but hopefully we can reach a resolution before this behavior severely damages two crucial global economies. 

Sentiments and sales 

Consumer sentiment in April rose to its highest level in 15 years. This increased level of confidence for consumers is being driven by the shining star of our economy lately – the robust labor market. This report can be added to the slew of strong economic survey- and sentiment-based data recently. However, we also saw some weakness in the latest retail sales data coming in at 3.1% annual growth compared to the 6% annual growth we were seeing last year. Don’t forget, though, that last year’s numbers were boosted by the tax cuts, and we’re not seeing that incremental growth this year. 

Moral of the story: This latest consumer sentiment print was recorded before the renewed trade war tensions with China that began two weeks ago, so there’s some downside risk baked into this number. However, combining all the data we’ve seen so far, it seems that the underlying economic growth is relatively healthy.  

Earnings are almost over 

This week brought us the tail end of earnings season and we saw results from some big retailers like Walmart and Macy’s. Walmart reported better than expected earnings driven by a 3.4% increase in same store sales and a 37% increase in ecommerce. Macy’s hit the ball out of the park with results that far exceeding market expectations. 

Moral of the story: Strong retailer results stem from strong consumers. Adding this to the strong consumer sentiment mentioned above makes me marginally more bullish toward some strength to second quarter GDP.