Consumers Offer Reassuring Sign of Growth

Apparently, a yield curve inversion is no match for the U.S consumer.

Days 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, growth forecasts are now rising, and the economy looks nowhere as bad as the bond market yields would have us believe. For example, even with all of the chaos this summer, consumers have remained resilient-- and they’re spending.

July 2019 retail sales jumped 0.7% month over month, for example.

Excluding autos, retail sales were up a robust 1.0% in July -- an encouraging sign.

Even homebuilder confidence just increased, as mortgage rates pulled back. Builder confidence for single-family homes hit 66 in August 2017 – a point higher month over month. As long as that number is above 50, it’s a positive.

Better, it appears the global trade war may finally be cooling off.

For one, President Trump just extended a reprieve to Huawei, allowing it to buy supplies from US companies so that it can continue servicing existing customers. An extension will renew an agreement that was set to lapse on August 19, allowing the Chinese company to maintain existing networks and provide software updates to Huawei handsets.

Two, the President just delayed the 10% tariff on Chinese goods until December 2019. And three, the U.S. and China are set to speak again very soon about a resolution.

All of that could send markets higher from excessively oversold conditions.

As long as that good news continues, growth shouldn’t be a problem.

By: Ian Cooper of Wellington & Co. Hedge Fund Research

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