Strong Economic Development Seen in the USA
$DIA, $SPY, $QQQ
US stocks were up and down last week, seeming driven by shifting headlines on US-China trade tensions. When in fact the market is consolidating the huge gainer since Donald Trump was elected US President.
Now, is very important to distinguish between tariffs that we already have details on and the latest inflammatory rhetoric.
We estimate that the US tariffs including the enacted tariffs on steel and aluminum could pare about 0.1% from annual GDP growth over the next few years, and could add up to 0.1% annually on inflation.
Depending on what is enacted following a consultation period, the price and demand impacts could be somewhat more pronounced if the tariffs are applied largely on consumer goods rather than business investment goods.
China saber rattling targets 38% of American goods exports to China, which represent about 0.3% of US GDP.
HeffX-LTN estimate that these tariffs would reduce US growth by up to 0.1% annually for the next 2 years. So, slightly weaker US demand could act to offset some of the price pressures from the US import tariffs.
Developments on the trade front overshadowed strong signals from the US economy.
Auto sales came in better than expected in March, and the ISM indices remained well in expansionary territory.
NFP gains slowed to 103-K on the month, this came on Top of a very strong showing in February at 326-K.
Looking past the Noise, the underlying job market is healthy, as demonstrated by increased wage gains which are up 2.7% Y-Y.
Tax cuts and increased government spending are expected to fuel to the labor market and the economy, with the latter expected to run at roughly 3% over the next few Quarters.
So, the US economy is still on a solid run, but a real escalation in the trade conflict poses a material Southside risk.
Savvy observers expect that the conflict to be resolved through Donald Trump’s ‘The Art of the Deal’ rather than Sun Tzu’s ‘The Art of War’.
Have a terrific weekend.