Apparently, a yield curve inversion is no match for the U.S consumer.
A day after markets plunged on a 2/10 yield inversion, markets are finding reason to rally thanks to the U.S. consumer and rising productivity.
For one, U.S. productivity rose at a healthy 2.3% annual clip in the second quarter, which could lead to higher wages if that were to continue. Two, retail sales were up 0.7% in July 2019, which was well above forecasts for an increase of just 0.3%.
Excluding autos, retail sales were up a robust 1.0% in July.
That’s quite an encouraging sign. After all, consumer spending -- the primary catalyst of economic growth -- remains healthy even as other sectors of the economy, such as business investment, have weakened with the trade war.
“The continued surge in retail sales in July was probably flattered by Amazon Prime Day spending and a rise in gasoline prices last month,” said Michael Pearce, economist at Capital Economics, as quoted by the Financial Times. “Nevertheless, there’s no denying that consumption growth remains strong, which should prevent the weakness in manufacturing and business investment from dragging the economy into recession any time soon.”
In short, despite plenty of headwinds, consumers are loosening their purse strings, and spending. As long as that continues, growth shouldn’t be a problem.
At least, that’s what the hope is.