The Tell: What trade war? U.S. consumer remains resilient in the face of Trump’s tariffs

While U.S. many businesses are expressing increasing concern over the effects of tariffs on imports and exports imposed by the U.S. and China, the U.S. consumer doesn’t seem to be feeling the same pain, according to a Friday research note from Bank of America Merrill Lynch.

“For the last several months, retail sales have been growing at a solid pace after the weak start to the year,” wrote Bank of America analysts led by US economist Michelle Meyer.

“The big question facing market participants is whether the uncertainties posed by the trade war will impact consumer behavior,” she added. “We have seen evidence of businesses delaying investment as a result, but there has been little sign of it changing the equation for the consumer.”

“Focusing on the trend, the story is still clear: consumers’ wallets are still open.”

Indeed, analysts point to the strength of the U.S. consumer, as measured by retail sales and also by a historically low unemployment rate and historically high consumer confidence levels as a primary justification for major stock benchmarks, including the S&P 500 index SPX, +0.28% the Dow Jones Industrial Average DJIA, +0.67% and the Nasdaq Composite index COMP, +0.45% touching news highs this week.

The Bank of America team drilled down to look at consumer spending on the zip-code level, to examine consumer-spending data in parts of the country where manufacturing jobs predominate and also those areas with high concentrations of soybean farms, as manufacturing firms have reported struggles with rising input costs as the result of new tariffs on Chinese and other imports, while soybean farmers have seen their exports to China drop precipitously as a result of Chinese retaliatory measures.

“We find no discernible difference in spending trends in these regions as compared to the rest of the country,” Meyer wrote. “In contrast, during the last manufacturing downtown in 2015, consumption in the manufacturing and soybean regions contracted, diverging with the rest of the country.”

“This means that consumers are still spending at a trend pace even in areas at the epicenter of the trade war,’ she added. “We think this should lessen the worry about the spillover from the trade war to the domestic economy.”

The trend runs in stark contrast to the economic situation in China, where June imports tumbled 7.3% versus the year earlier, the government reported Friday, suggesting a weakening consumer. This comes after recent data showing demand for housing slowing, while automobile sales fell for the 11th straight month, down 16.4% in May, compared with a year ago.

These data suggest that the U.S. might still have an upper-hand in the ongoing U.S.-China trade spat, though consumer strength in the U.S. is dependent, Meyer argued, on businesses willingness to hire, and consumers feeling secure in their jobs.

With the Federal Reserve indicating the need to cut interest rates at the same time that U.S. job and economic growth slowing, there always remains the chance that the American consumer will ultimately become another casualty in the conflict.

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