The chances of a recession later this year have increased again as consumer sentiment in August slumped to its lowest level since the beginning of 2019. The main factors contributing to the decline were the expected imposition of further tariffs on Chinese imports and the hike in the Fed’s interest rates. On top of that Donald Trump’s erratic behavior on economic policies added significantly to consumers’ expectations of tough times ahead.
The table below shows the development of consumer sentiment in the past several months and in the year so far:
|Index of Consumer Sentiment||92.1||98.4||96.2||-6.4%||-4.3%|
|Current Economic Conditions||107.4||110.7||110.3||-3.0%||-2.6%|
|Index of Consumer Expectations||82.3||90.5||87.1||-9.1%||-5.5%|
Trump keeps saying that China will pay for the tariffs. Nothing is further from the truth. The tariffs will boost prices on Chinese goods, prices US consumers will have to pay. To be sure, the higher cost of Chinese imports will have to be borne by China in the form of lower sales to the US, but the cost to US consumers will be more significant than the lower sales by China.
The implications of lower growth in the US are here already. The housing industry seems to be feeling the pinch as housing starts in July fell 4% m/m after slipping 1.8% the month before. Expectations are that housing starts will slide further in the months immediately ahead. On top of that, sales of homes (both new and used) should slump in the coming months.