Consumer confidence remained high in surveys released at the end of June, but there were signs that concern about the impact of President Donald Trump’s aggressive trade policies has begun to creep into consumers’ minds. One in four people surveyed for the University of Michigan’s Consumer Sentiment Index “spontaneously cited” the effects of Trump’s tariffs, and most of them expected negative effects, such as lower growth and higher inflation, Richard Curtin, chief economist of the university’s Surveys of Consumers, says in a statement.
The sentiment index sat at 98.2 at the end of June, just above its final reading for May, and it has been nearly unchanged at that strong level for three months. “The persistent strength has been due to favorable assessments of jobs and incomes,” Curtin says. “While consumers anticipated rising interest rates during the year ahead, those expected increases were associated with a modest decline in longer-term prospects for the national economy.”
Curtin says consumers have long believed that trade with other countries makes more goods available at better prices. “When asked in a recent survey about their views on international trade, two-thirds of consumers thought that more trade with other countries would be better for the domestic economy,” he says.
“To be sure, consumers’ judgments about the impact of higher tariffs will not crystallize until they gain more experience with actual changes in product prices and domestic employment,” Curtin adds. “While tariffs may have a direct impact on only a very small portion of overall GDP, the negative impact could quickly generalize and produce a widespread decline in consumer confidence.”
Separately, The Conference Board’s Consumer Confidence Index declined by a little more than two points in June, but at 126.4 it was only a few points below the 18-year high of 130 that it achieved in February. Within the overall index, the “present situation index” — a measure of the way the economy is performing now — was essentially flat with the previous month. However, the survey’s “expectations index,” which projects economic conditions six months from now, lost four points.
“Consumers’ assessment of present-day conditions was relatively unchanged, suggesting that the level of economic growth remains strong,” Lynn Franco, director of economic indicators at The Conference Board, says in a statement. “While expectations remain high by historical standards, the modest curtailment in optimism suggests that consumers do not foresee the economy gaining much momentum in the months ahead.”
Steve Trkla, president and general manager of Torqeedo USA, says the German-owned electric propulsion systems manufacturer has been doing well in the current economy. “As a Greentech company and a leader driving new technologies, we have seen strong growth almost every year since our launch as a company back in 2006,” Trkla says.
U.S. employers appeared to shrug off concerns about tariff problems in June, exceeding analysts’ expectations by adding 213,000 jobs. Reuters and Bloomberg each say economists they polled expected an increase of 195,000. In addition to reporting the June growth, the U.S. Department of Labor says job gains for April and May were revised upward by a total of 37,000.
The unemployment rate ticked up to 4 percent from an 18-year low of 3.8 percent in June, as 600,000 people entered the job market, believing there is now work for them. “I’m really excited to see that the labor force is growing,” Catherine Barrera, chief economist of the online job site ZipRecruiter, tells The New York Times. “There were some people who weren’t participating in the labor force who are now being encouraged to return, so I’m not concerned about the uptick in unemployment.”
The Labor Department says employment grew in June in professional and business services (up 50,000), manufacturing (up 36,000, including 12,000 in the auto industry), and health care (up 25,000) — all sectors of the economy that offer good-paying jobs, a trend that bodes well for the marine industry. The government says employment in professional and business services has risen by 521,000 for the year through June.
Average hourly earnings rose by 5 cents, or 0.2 percent, in June, to $26.98, from the previous month, the government says. For the 12-month period that ended in June, earnings increased by 72 cents, or a still modest 2.7 percent.
Despite steady payroll increases in the years since the Great Recession ended, the pace of pay gains has been slower than economists expected. “This is a good job-creation number, but on the other hand we see still continued soft wage growth,” Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., tells Bloomberg. “It’s positive in the sense that we still have some capacity to grow above trend without triggering too much inflation worry.”
Torqeedo’s Trkla notes that U.S. employment has been improving slowly but steadily since 2011 and that the job gains have led to steady growth in U.S. retail boat sales. “I am still cautious, though, as we are definitely having a harder time finding highly qualified employees in the U.S.,” he says. “I’m concerned that we’re not adding enough of the types of jobs that allow people the disposable income to buy boats. The recent [Commerce Department] report showing personal income rising in April and May hopefully is a positive indicator that stagnant wages for the middle-class homeowner will improve and, in turn, will stimulate spending.”
Trkla says the Paris Agreement has boosted commercial interest in e-mobility on the water, and this has benefited Torqeedo in Europe and Asia. “Most of the world’s great cities are built along waterways, and cities are looking at ways to move commuter traffic to this underutilized transportation method,” he says. “Many of these cities also struggle with air quality, so emission-free electric propulsion is a great solution for water taxis and ferries.” He adds that over 400 U.S. cities, representing almost 70 million Americans, have pledged to uphold the commitment to the Paris Agreement.
The Labor Department’s jobs report was issued July 6, the day that Trump imposed $34 billion in tariffs on Chinese imports and China retaliated with duties of the same amount on U.S. goods. The United States is also engaged in a trade war with Canada, Mexico and the European Union.
Torqeedo GmbH was acquired last fall by Deutz AG, a German manufacturer of engine and drive systems, and is now part of the Deutz Group. Torqeedo has locations in Gilching, Germany; Crystal Lake, Ill.; and Bangkok. “Torqeedo is a global company,” Trkla says. “This trade war hurts everyone.”
For the time being, the U.S. manufacturing sector remains strong. The Institute for Supply Management says its manufacturing index rose to a level of 60.2 in June from 58.7 in May. Readings above 50 indicate that manufacturing is expanding.
“Demand remains robust, but the nation’s employment resources and supply chains continue to struggle,” Timothy Fiore, chairman of the ISM Manufacturing Business Survey Committee, tells Reuters. “Respondents are overwhelmingly concerned about how tariff-related activity is and will continue to affect their business.”
Consumer spending rose 0.2 percent in May, the Commerce Department says — a rate that economists found disappointing. Previous reports found that spending rose 0.6 percent in March and 0.5 percent in April. “The tone of the [May] report is a little weaker momentum in spending than we’d anticipated,” Michael Gapen, chief U.S. economist at Barclays Plc in New York, tells Bloomberg, although “the overall trend in personal consumption is still consistent with acceleration” during the second quarter. Inflation, as measured by the Personal Consumption Expenditures Price Index, the gauge the Federal Reserve prefers to use, was up 0.2 percent in May and 2.3 percent during the past 12 months — the fastest 12-month pace since 2012 and slightly above the Fed’s optimal target for 2 percent annual gains in inflation.
Minutes from the Federal Open Market Committee’s June 12-13 meeting show that members of the central bank’s policy-setting panel expect to keep raising interest rates this year and that business executives are worried about Trump’s hardline trade policies. Fed officials say some leaders had already reduced future spending plans.
The Fed in June boosted its benchmark federal funds rate for a second time this year, to a range of 1.75 percent to 2 percent, and projected that it will raise rates four times in 2018. Before the June meeting, the expectation was for three increases.
On a potential bright note for the marine industry, the market for new homes was stronger in May, and its results exceeded expectations. The Commerce Department says sales of new homes rose 6.7 percent, to a seasonally adjusted annual rate of 689,000. That was the highest level since November. All of the gains occurred in the South, where sales rose 17.9 percent.
Existing-home sales fell 0.4 percent in May, to a seasonally adjusted annual rate of 5.43 million, from a downwardly revised 5.45 million in April, but low supply and high prices were key reasons for the decline. National Association of Realtors chief economist Lawrence Yun says in a statement that an economy and job market as strong as the nation currently enjoys should be generating higher home resales.
“Closings were down in a majority of the country [in May] and declined on an annual basis in each major region,” Yun says. “Incredibly low supply continues to be the primary impediment to more sales, but there’s no question the combination of higher prices and mortgage rates are pinching the budgets of prospective buyers and ultimately keeping some from reaching the market.”
The NAR says the median existing-home price for all types of housing in May was $264,800, an all-time high and up 4.9 percent from May 2017 ($252,500). The increase in May marked the 75th month in a row of year-over-year gains.
This article originally appeared in the August 2018 issue.