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Consumers support the economy. What happens if you stop paying?



Major retail sales plunged 1.7% in December, the most in nearly two decades.

Debt on the stock market chaos in December. Or the beginning of the government deadlock. Or even "glitches" in the data, as White House economic adviser Larry Kudlow did last week.

Regardless of the cause, the seemingly abrupt shift in spending prompted economists to slow down their growth forecasts. Goldman Sachs reduced its GDP estimate for the fourth quarter to 1.9%. Bank of America lowered its forecast to 1.5%.

It is a blatant reminder that it is not just something like Amazon ( AMZN ) Macy's M and Best Buy ( BBY ) which depend on American buyers.

"The US consumer keeps the world economy on its shoulders," said Peter Boockvar, chief investment officer of the Bleakley Advisory Group, in a report late last week.

That may sound like an overvaluation. Remember, however, that consumer spending accounts for two-thirds of the US economy, which is the largest in the world. China is facing a strong slowdown, Germany's annual growth is at a five-year low, Brexit continues to weigh on the UK, and Italy is in recession.

"We hope it was a month-long runaway and that the recovery in equities … will boost consumer spending," Boockvar said.

Perhaps it should not be shocking that the Americans withheld their spending by the end of 201

8.

Not only Washington stole what would become the longest partial government shutdown in US history, but broke into the once booming Nasdaq a bear market. Recession concerns, exaggerated in retrospect, caused the worst December of the S & P 500 since the Great Depression.

The weakness of the retail industry shows how recession fears can become a self-fulfilling prophecy. There is a positive and negative feedback loop between consumers and the market. High stock prices encourage consumers to spend – and vice versa.

Bank of America US economist Michelle Meyer said consumer sentiment deteriorated sharply. This is the biggest "negative confidence shock" since 2011.

"The consumer begins in 2019 on unstable ground," Meyer wrote to his customers at the end of last week.

Goldman Sachs chief economist, Jan Hatzius, warned that the extent of the decline in retail sales has increased the risk that the underlying pace of consumer growth has slowed significantly.

But Hatzius believes the wreck could turn out to be a runaway in December as economic reports point to a recovery in January.

Fortunately, the government's drama has come to a standstill and the stock market is on fire.

The S & P 500 was strengthened by the sudden patient Federal Reserve and US-China trade talks, the S & P 500 has recorded its best 30-day start in a trading year since 1991, according to the Bespoke Investment Group The Dow is only 4% below the record high of October 3.

In other words, the confidence shock should subside and pave the way for a recovery in consumer spending.

But beware If it persists long enough, it may be enough to overthrow the economy.

2. Buffett Clock: Berkshire Hathaway ( BRKA ) is expected to report profits next Friday. If the story is a guide, Warren Buffett will publish his annual shareholder letter the next day.

Buffett's letter is carefully read because of his investment advice. This year, the memo seeks to understand the slowdown in economic growth in the United States and around the world, as well as its importance to businesses and markets.

A little tidbit that could also be explained: Last week, Berkshire revealed this it sold its entire $ 2 billion stake in Oracle ( ORCL ) after he had held the investment for only a quarter.
. 3 More Food Income on the Menu: It's another week for food revenue. Domino's ( DPZ ) Jack in the Box JACK Wendy's WEN ) and Dine Brands ( DIN ) Owners of IHOP and Applebee, are all fast on deck.

Other fast foods – and fast-casual restaurants have discussed how digital investments, delivery programs, and menu innovations have worked well in 2018. Expect these companies to do the same when reporting on results.

Digitization and delivery was a strength for Domino and a way to try and stay ahead of competitors like Pizza Hut A few weeks ago, Domino announced a time-limited initiative that uses artificial intelligence to reward people for buying pizza – even if they come from a competitor Investors want a lot ht know how digital efforts have paid off in the past year.

4. Next Week:

Monday – US Markets Closed for Presidents Day

Tuesday – Walmart ( WMT ) Reports Revenue
Wednesday – CVS ( CVS ) Jack in the Box and Cheesecake Factory CAKE ) Report result
Thursday – Deutsche Telekom ( DTEGY ) Barclays ( BCS ] Baidu ( BIDU ) Dominos and Wendy's Report Income
Friday – Berkshire Hathaway ( BRKA ) Result

[19659003] Danielle Wiener-Bronner of CNN Business contributed to this report.


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