Markets Slip on Weak Retail Sales – and Fears of Recession

Nearly 20% of Americans are turning to cash, as many fear a recession.

That’s according to a new MetLife poll of 8,000 adults, as highlighted by CNBC.  Up to 21% report they’ve also become conservative with their money.  

Unfortunately, there’s been a steady flow of evidence pointing to slowing growth.  

Economists believe President Trump’s trade war will contribute to a sharp slowdown this year and next, increasing recession concerns, notes the Associated Press.  In fact, a survey of 51 forecasters with the National Association for Business Economics shows they expect GDP  to slow to 2.3% this year from 2.9% in 2018. 

They also believe there’s a risk of recession by late 2020.

Consumer Spending Fell in September on Recession Fears

U.S. consumer spending fell to its lower rate in seven months, according to the Commerce Department.  Sales of retail goods and food services fell 0.3% in September 2019, as consumers tighten their belts over recessionary fears, says The Hill.

However, not all consumer news was bad.  

August 2019 consumer spending was revised higher, showing a gain of 0.6% instead of 0.4% as initially reported. Year over year, retail sales are up 4.1%.

“While this is by no means conclusive evidence that the consumer is wavering (after all, the upward revisions reduce the impact of September’s declines), it nonetheless reinforces our ongoing concern that a spending retrenchment will ultimately trigger a more durable slowdown,” wrote Ian Lyngen, head of rates research at BMO Capital Markets, as quoted by CNBC.

ISM Shows Contraction at Less than 50

The ISM September survey on manufacturing registered came in at 47.8%, down from 49.1% from July.  It’s also the worst on record since June 2019, and shows contraction.

“The disappointing data is only fanning long-standing fears of slowing global growth,” Alec Young, managing director of global markets research at FTSE Russell said, as quoted by MarketWatch. “And with U.S.-China trade expected to produce little in the way of near-term breakthroughs, investors continue to favor counter-cyclical, defensive stocks with high dividend yields as weak data pushes interest rates ever lower.”

It’s a clear sign the trade war has done a good amount of damage.

Private Payrolls Shows the Pace of Hiring is Slowing

The private sector did create more jobs than expected in September 2019, but the pace of hiring slowed.  Companies hired 135,000 workers in September, which was better than the 125,000 expected by analysts. However, that’s down from the 157,000 posted in August, and is also down from initial reports for an addition of 195,000 workers.

“We are in a very critical place, kind of a fragile juncture in the economy,” Mark Zandi, chief economist at Moody’s, said as quoted by CNBC. “What happens over the next few weeks, next few months, will determine whether there’s an economic downturn in 2020. Demand for labor is beginning to weaken. Hiring is weakening across the board.”