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베어링 인베스트먼트 인스티튜트
거시경제 및 지정학

Will Christmas Save The World?

2019년12월6일 - 3 분 읽기

So far this year, so good. The headlines may describe a world coming unglued, from Santiago to Hong Kong and trade wars to Brexit, but the average American’s urge to spend remains one of the strongest forces known to nature.

Christians look to the birth of Jesus as a sign that God has not given up on us yet. More prosaically, investors stare at Christmas retail data for evidence that this economic cycle still has enough steam to carry through next year. Spending that accounts for more than two-thirds of an economy that accounts for a quarter of global activity can’t save the world economy on its own, but the world economy cannot be saved without it. 

So far this year, so good. The headlines may describe a world coming unglued, from Santiago to Hong Kong and trade wars to Brexit, but the average American’s urge to spend remains one of the strongest forces known to nature. 

Nearly 190 million people went shopping in the five days that bridge Thanksgiving and Cyber Monday, according to the National Retail Federation. That’s a new record and 14% more than last year. These shoppers spent $362 on holiday items, which is up 16%. Meanwhile, a Gallup survey suggests this may be one of the best seasons of the decade with Americans expecting to spend $846 on gifts, up $52 over last year. 

A shorter shopping season and early winter storms could undercut some of this initial holiday optimism. But none of these variables should affect shoppers on laptops in their bunny slippers. By one reckoning, digital sales were up 20% on Black Friday, and the average order was up 6% to $168. Malls and Main Streets continue to suffer from the secular shift to online sales, but overall spending growth looks as healthy as ever. 

None of this is immutable. Last week’s data on the service sector was weak and could signal some trouble ahead, but Friday’s non-farm payroll report exceeded expectations and confirmed other good news on wages, unemployment and sentiment. 

AVERAGE HOURLY EARNINGS GROWTH 

Source: Haver, Bloomberg. As of November 30, 2019.

CONSUMER CONFIDENCE

Source: Bloomberg. As of November 30, 2019.

Even Europe’s gloom may be dissipating slowly as its consumer confidence holds steady, unemployment numbers fall and wages rise. Spending prospects already look brighter next year as rising savings rates suggest there is pent-up demand as long as sentiment persists. 

Recognition for extending the cycle goes primarily to the world’s largest central banks. American households have benefited directly from lower mortgage and credit costs. Further accommodation from the European Central Bank, the Bank of Japan and the People’s Bank of China have underpinned demand and helped to postpone many recession forecasts beyond next year.

The lesson for those of us who are paid to worry about markets could be that we spend too much time focusing on the political noise. We may confuse anger at a system that many believe is rigged against them with comparative financial security from one year to the next. 

Yes, median household incomes have stagnated for decades and 27% of American families cannot cover a $400 emergency. But what they sense in the current jobs market makes them comfortable enough for a slightly more lavish holiday celebration this year.

U.S. HOUSEHOLD BALANCE SHEETS

Source: Bloomberg. As of September 30, 2019.

That bureaucratic bickering, especially as it plays out in tariffs, seems to have had a much greater influence on corporate decisions and plans for fixed asset investment. Tariff threats and political uncertainty make it far more difficult to plan. How much will my imported parts cost? Can my exports still sell at a competitive price? I was already worried about China, but do I now need to think about Europe, Brazil, Argentina and even Mexico?

“The lesson for those of us who are paid to worry about markets could be that we spend too much time focusing on the political noise. We may confuse anger at a system that many believe is rigged against them with comparative financial security from one year to the next.”

Then, there is an increasingly boisterous election campaign. Will a new Democratic president bring new regulations for my industry? Shouldn’t I just hold off on that new factory for another year? Will impeachment proceedings have any impact at all?

Perhaps the biggest economic uncertainty for 2020 remains whether mounting political risks will extend this downturn in capital spending and if it will finally start to chip away at U.S. consumer confidence.

NONRESIDENTIAL FIXED INVESTMENT GROWTH

Source: Bloomberg. As of September 30, 2019.

Logically, if companies don’t build factories, they don’t need as many workers. But that certainly hasn’t been the case so far. It’s possible that a workforce that is increasingly tilted toward services is less sensitive to trends in capital spending. It’s possible that strong consumer demand will drive capital spending rather than the other way around. Companies can’t delay investments indefinitely and will just have to live with tariff and regulatory uncertainty.

And as long as rates are low and confidence remains solid, perhaps we should focus our worries about this extended cycle elsewhere: debts without covenants, an unexpected whiff of inflation or oil prices that still depend on risk in unpredictable countries.

Over the next three weeks, watch the regular retail sales reports, the home delivery volumes and, yes, the weather. But pause also for a moment to celebrate U.S. consumers as they celebrate the coming holiday.

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