The Commerce Department has released the first advanced estimate of retail sales and consumer spending for June. Core retail sales increased 0.7 percent last month (very strong), and 3.8 percent year-over-year; very strong retail sales.
Retail sales is an important component to the U.S. economy as more than two-thirds of our GDP is based from retail sales. In essence, one of the unique attributes to the U.S. economy is that we buy lots of stuff. Actually, the U.S. consumer buys almost three-quarters of everything produced. We are -for the most part- self-sustaining; we do not necessarily need to depend on exports. When the U.S. consumer is buying stuff the internal economy is strong.
WASHINGTON (Reuters) – U.S. retail sales increased more than expected in June, pointing to strong consumer spending, which could help to blunt some of the drag on the economy from weak business investment.
[…] Economists polled by Reuters had forecast retail sales edging up 0.1% in June. Compared to June last year, retail sales advanced 3.4%.
Excluding automobiles, gasoline, building materials and food services, retail sales jumped 0.7% last month after an upwardly revised 0.6% increase in May. These so-called core retail sales, which correspond most closely with the consumer spending component of gross domestic product, were previously reported to have increased 0.4% in May.
June’s strong gain in core retail sales followed solid increases in April and May, suggesting consumer spending accelerated in the second quarter after rising at its slowest pace in a year in the January-March period. (read more)
The data is a reflection of Main Street strength. The job market is hot; wages are rising much faster than inflation; the middle class has more disposable income. Hence, retail sales are strong.
President Trump is continuing to emphasize and incentivize corporate manufacturers to return to producing products inside the U.S. The American market is the gold-standard for consumer goods. Companies that make stuff need access to their best customer, that’s the U.S. market.
For 30+ years, U.S. policy was driven by Wall Street influence who wanted to exploit the purchasing power of the U.S. economy by manufacturing for lower production costs overseas, thereby increasing overall profit. However, that process meant the U.S. lost the manufacturing jobs as the stuff we buy was no longer made domestically.
President Trump has put incentives in place to make moving production back into the U.S. the best bet (carrot), and is simultaneously putting pressure on the backside of the import equation through tariffs (the stick). This is the essential fight between Wall Street (multinational corps) and Main Street (Trump).
The Wall Street multinationals want unfettered access to the U.S. market, but they don’t want their products made in the U.S. because -according to them- it will cost more and lower their profits. To try and avoid Trump’s dynamic, China is actually dropping the price of their products even further through subsides, incentives and currency devaluing.
As all the multinationals fight to try and keep their manufacturing overseas, the prices of their imported products continue to drop (.09 percent in June) massively. In essence, in a very weird dynamic, we are importing deflation.
We are importing lower prices, U.S. consumers are seeing lower prices, because the corporations are trying to keep making stuff overseas. Ironically, this means despite Trump smacking tariffs on China the U.S. consumer is getting a better price on imported finished goods. Ergo, retail sales strong etc.
However, in the longer term, the Total Cost of Production (TCP) is constantly being re-evaluated. Low energy prices in the U.S, access to raw materials, shipping costs and rising wages overseas means the TCP gap has massively narrowed.
Trump’s Main Street USA policies have lowered the cost of manufacturing in the United States; there are no longer huge production saving overseas; it just doesn’t make as big a difference as it used to. This TCP narrowing now means when President Trump applies tariffs the impact carries more weight…. That’s why Trump enjoys being “Tariff Man”.
As more companies return and make their stuff here, the GDP of the U.S.A. expands massively [imports are deductions from GDP]. This is why President Trump see’s no upper limit to the amount of potential GDP growth.
If the multinationals return production to the U.S. and the American consumer is purchasing the product, all of the economic value -the entire dynamic- stays inside the U.S.A.
Trump policies mean we are not dividing a limited pie, we are creating more pies.
Ultimately, this dynamic is why the USMCA trade agreement is so important. On the geopolitical side we STOP giving money to our economic enemy, China; and while some companies will look to Mexico first -before the U.S.- we at least make North America the best bet for manufacturing investment and get that money out of China.
Mexico isn’t stupid, they can see the North American economic opportunity in the big picture. That’s why Mexican trade negotiator Jesus Seade was so engaged with U.S. Trade Rep. Robert Lighthizer. When President Trump warned Mexican President AMLO of tariffs on Mexican goods if he didn’t stop the migration issue, that threat carried much more weight than it would have a few years prior.
If the USMCA is ratified, it will crush the position of China and we can expect to see Trump completely disengage from trade negotiations with Chinese Chairman Xi Jinping.
However, China knows this massive problem exists… there are multi-trillions at stake… China is now aligned with Nancy Pelosi to remove President Trump (watch Dem bank accounts)…. that’s why Speaker Pelosi is dragging her feet on the USMCA.