December 14, 2018

Holiday Spending Should Be Strong. And Then?

United States gross domestic product has posted two straight quarters of strong growth, driven largely by robust consumer spending. Most economists expect that growth to slow in the final three months of the year as the effects of the tax cuts fade.

“There’s a very clear spike in sales in the middle of the year obviously driven by the tax cuts, and there’s an equally clear reversal in the second half of the year,” said Ian Shepherdson, an economist for Pantheon Macroeconomics, a research firm. “It’s the sugar rush followed by the comedown.”

That slowdown, by itself, isn’t much cause for concern, Mr. Shepherdson said. But there are other hints of trouble on the horizon. The housing market has slowed markedly this year, as interest rates have risen and prices have outstripped income growth. And additional tariffs on Chinese goods are set to take effect in January, which could push up consumer prices.

“Consumers are at the heart of what’s gone right in the economy the past couple years, and I think they’re going to be the biggest contributor to the slowdown,” said James Bohnaker, an economist for IHS, a research firm.

Those concerns may be part of what has driven the stock market’s recent drop. Retail stocks fell on Tuesday despite strong results, as investors worried that rising costs could eat into earnings.

The market turmoil could affect consumer sentiment, especially among wealthier households more likely to own stocks. The University of Michigan survey found that confidence fell more among higher-earning households in November.

But falling share prices are unlikely to hurt holiday sales much, Mr. Song said. Most Americans don’t own stocks outside of their retirement accounts, and many have already set their holiday budgets — or have even begun to shop. A Bank of America survey found that about 20 percent of consumers started their holiday shopping before November, and 67 percent said they planned to shop over the extended Thanksgiving weekend.

Article source: https://www.nytimes.com/2018/11/22/business/economy/holiday-retail-spending.html?partner=rss&emc=rss

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