A worker cuts a steel strip at the Novolipetsk Steel PAO steelworks in Farrell, Pennsylvania, March 9, 2018.
Aaron Josefczyk | Reuters
Consumer and industrial activity in the US and China slowed in April, even before the world's two largest economies entered the last phase of an escalating trade war that could steal global growth.
"The real message today is that both economic data from the US and China have disappointed, they are like two boys in the sandbox spitting at each other and it could get a lot worse," said Marc Chandler. Global Market Strategist at Bannockburn Global Forex.
The latest round of collective bargaining announced by President Donald Trump and China's President Xi Jinping increased the use and potential economic damage to both economies. Trump raised tariffs on goods worth $ 200 billion from 1
Economists see a decline in Chinese GDP by 0.4 to 0.5% and a decline in Chinese GDP by 0.1% US from higher tariffs. Strategas Research estimates that higher tariffs would cut growth in the US by 0.1% every two months, ie by 0.5% per annum.
Trump also threatened with 25% duty on another $ 325 billion in Chinese goods, economists say, could hit Chinese sales and give US consumers higher prices. The impact of these duties would be even greater on GDP.
China's retail sales rose 7.2% in April, the slowest pace in 16 years, below the 8.7% in March and the forecast of 8.6%. China's industrial output rose 5.4% in April, below the expected 6.5% or 8.5% in March.
"These are the first cleaner data we receive, and they paint a much less rosy picture of the economy than many people thought," said Gareth Leather of Capital Economics. Leder said seasonal factors may have masked the weakness of the March data, which showed some improvement and seemed to be a sign of green shoots and recovery. "For the time being, these hopes will really be dashed."
US. Retail sales declined by 0.2% in April after surging 1.7% in March. Car sales declined 1.1% last month while sales in electronics and home goods businesses declined 1.3%. Economists had expected a 0.2% increase in monthly sales data, which is important as it reflects consumer health, about 70% of the US economy.
Industrial production, which reflects total output in factories, utilities and mines, declined 0.5% after rising 0.2% in March. Manufacturing output declined by 0.5%, led by a 2.6% drop in motor vehicles and parts, the third drop in four months and the most recent manufacturing report, which proved soft.
Impact on Customs
"Michelle Meyer, Bank of America Chief Economist, Merrill Lynch." I will pay close attention to production data, survey data, and confidence levels. It will be very important to observe how the economy beats the escalation. The manufacturing industry is already weakened. "She said manufacturing had been declining since the peak of last summer.
She said that trade wars had an impact on manufacturing, with about 59% of companies in the semiannual ISM Surveys said that tariffs would have led to an increase in the price of goods produced.
Meyer described the weaker retail data for April as "noise," but said it was to be observed whether the tariffs $ 325 billion of goods imported since then would directly affect many consumer goods, with manufacturers reporting the impact of tariffs, 59% said production costs had risen as a result.
Markets responded to news from both countries by stating that Expectations of easing central bank and other policy measures increased futures on US equities African Fed funds signaled the expectation of a rate cut by more than a quarter point this year, while Chinese stock markets were on the rise due to the expectation of more fiscal and monetary stimulus.
"Both economies weakened before the end of the Customs Agreement, but the interesting thing is that we still do not talk about a recession level, so if China grows less than 6%, that's a big deal," Chandler said. He said growth in the US is currently expected to average 2.4% in the first half of the year.
"I think the odds that the Fed will need to lower interest rates before the end of the year have increased significantly in the face of the trade war scenario. It's still not my baseline, I think the Fed needs to be wary of the current trading tensions It is not obvious how persistent it will be and how it will affect the real economy, "Meyer said.
Trump has repeatedly called on the Fed to cut interest rates, even on Tuesday, when he said China is likely to lower interest rates If the US did too, it would be a "game over".
Leather said that if Trump went through the next round of customs clearance, it could be more damaging to US consumers than China, since many of the merchandise can not be sourced elsewhere. The first round of customs had not hurt China very much, and the economy had been declining for years, he said.
"It will have an impact on China," said Leather, when tariffs on goods worth $ 325 billion are introduced. "But not as much as people think, the impact on the US will be bigger." He said that China's problems are still ongoing.
"Looking at the first quarter, China's exports to the US have surpassed the rest of the world by 13%, and they are usually pretty much in line, they are going in lockstep, it seems there is some impact but China's exports. " for the US as a share of GDP it is about 3%. Thirteen percent of 3% are very low. Part of the slowdown in China is related to trade, but a very small percentage, "he said.