C8 SUNDAY, AUGUST 25, 2019 S LATIMES.COM/BUSINESS
most 3% last year.
But in his speech at the
Fed’s annual retreat in Jack-
son Hole, Wyo., Powell did
not commit to making rate
cuts, let alone of the magni-
tude that Trump has de-
manded — a full one-per-
centage-point reduction in
the Fed’s benchmark rate,
which now stands between
2% and 2.25%.
Fed policymakers are di-
vided, and uncertainty in
the trade outlook has been a
particular challenge. There
are “no precedents to guide
any policy response to the
current situation,” Powell
said.
Fed rate cuts could help
ease recession fears, which
have intensified with
Trump’s escalation of tariffs
and weaker economic data
from Europe and China.
What’s more, yields on 10-
year Treasury notes have
kept falling, briefly slipping
below yields on two-year
notes — a scenario consid-
ered a harbinger of a down-
turn.
Economists say econo-
mic expansions don’t die of
old age, but longevity isn’t ir-
relevant either when it
comes to things like pur-
chases of new cars. Auto
sales were fueled by pent-up
demand from the Great Re-
cession, but they can’t be ex-
pected to keep growing.
Similarly, home prices
nationally have risen to a
point that could slow an al-
ready lackluster housing
market. Less home-building
has meant less for furniture
and appliance dealers.
Fed rate cuts could help
lift the market, but they
won’t have a “wow factor,”
said G.U. Krueger of Krueger
Economics, a housing re-
search consultant in Los An-
geles.
Availability of credit
hasn’t been a problem for
most businesses and house-
holds. The good news, he
noted, is that there aren’t a
lot of financial imbalances or
excesses in the economy.
Unlike in the last downturn,
homeowners aren’t mort-
gaged to the hilt, and the
quality of loans in general is
much better.
Lenders, however, have
begun to tighten up on some
types of consumer credit.
Retailers and other busi-
nesses worry that Trump’s
new tariffs on many house-
hold goods made in China
will only make things worse
for consumers.
About a third of some
$300 billion of Chinese im-
ports — including athletic
footwear, coats and elec-
tronics such as televisions
sets — now face additional
15% tariffs next month.Trump delayed 15% tar-
iffs on most of the rest, in-
cluding laptops and cell-
phones, to Dec. 15, saying he
didn’t want to endanger the
Christmas shopping season.
At the same time, he hassounded more enthused
about tariffs and his trade
fight with China in recent
days. “I am the chosen one”
to take on China on trade, he
said Wednesday. On Friday,
he tweeted that Americancompanies “are hereby or-
dered to immediately start
looking for an alternative to
China,” and instead make
products in the United
States.
If the new tariffs do take
effect, as now expected, they
could pinch households.
Some companies may eat
the higher tariffs to main-
tain market share. But for
products like video game
consoles, where China domi-
nates 98% of the $5-billion
import market, consumers
are almost certain to absorb
at least some of the hit, said
Shawn DuBravac, president
of the research firm Avrio In-
stitute and former chief
economist at the Consumer
Technology Assn.
“While the consumer is
doing very well, you do have
an environment where the
consumer is also cautious
and could easily retreat if
uncertainty is high,” he said.
No one knows how much
the trade war has already
cost American businesses.
Many say they have sus-
pended or curtailed invest-
ments; some are rerouting
supplies; and on the whole
corporate profits have fallen
this year.For some companies, the
higher costs from the trade
war have erased the gains
from the Republican tax
cuts that Trump pushed for
in late 2017.
Trump himself has in-
sisted that the U.S. economy
is performing very well. Yet
the president has been re-
lentless in hammering the
Fed to lower interest rates to
bolster growth — “The only
problem we have is Jay Pow-
ell and the Fed. He’s like a
golfer who can’t putt, has no
touch,” Trump tweeted
Wednesday.
At the same time, Trump
has acknowledged that he is
looking at a payroll tax cut,
among other tax changes,
that could put more money
into consumers’ pockets and
stimulate the economy. Ad-
ministration officials report-
edly have talked about other
ideas, including a currency
transaction tax that could
weaken the dollar and make
U.S. goods sold in foreign
markets less expensive.
Scott Hoyt of Moody’s
Analytics notes that one of
the drivers for spending
growth in recent years was
expanding net worth of
households, the so-called
wealth effect. But stock
prices are about where they
were 18 months ago, he said,
and home prices began slow-
ing last year.
“Financial wealth effects
have been particularly large
since the financial crisis, so
the weakness of the stock
market will be a particular
weight,” he wrote in a re-
search report.
For many consumers, the
deciding factor in whether
they keep spending at their
current pace or pull back is
how they view their jobs.
With national unemploy-
ment very low at less than
4%, jobs have been more se-
cure and wage increases
have picked up in the last
couple of years, especially
for those at the bottom.
Layoffs remain low and
job growth, while slowing, is
still more than enough to
keep up with the population
increase and prevent the
jobless rate from rising.
Economists say that at
the moment, it’s hard to see
how consumers can drive
the economy into a ditch.
The tricky thing, however, is
that when households cut
back, it’s often too late, said
Krueger.
“Usually consumers are
the last ones to jump off the
cliff of a recession,” he said.Can Trump rely on U.S. consumers?
LESS HOME-BUILDINGhas meant less spending on furniture and appliances. But employment and wages
have picked up, and when consumers feel good about their jobs, they are less likely to cut back on spending.Spencer PlattGetty ImagesTHE INCREASEin U.S. home prices could slow the lackluster housing market.Frederic J. BrownAFP/Getty Images[Recession,from C1]
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