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Consumers Will Dictate Where the Economy Goes in 2020

Global growth and trade uncertainty held back the U.S. economy in 2019, but so far wage growth and a tight labor market have helped keep consumer spending at a steady pace.

“The consumer remains the linchpin to growth,” Jack Kleinhenz, National Retail Federation’s chief economist, said last week.

The trade dispute with China created a bit of uncertainty that held back business investment spending, which slowed with two back-to-back quarters of negative growth. And while the trade truce with China resulting in a “Phase One” agreement has been well received, uncertainty prevails, the NRF economist said.

“Looking forward, it is still very difficult to plan for capital spending,” Kleinhenz said. “When will there be a substantive trade agreement? Moreover, political uncertainties are adding to the challenge as decision makers may wait to see the outcome of the 2020 election.”

That said, NRF still expects steady growth going forward. The retail industry’s trade organization is still finalizing its forecasts for 2020. It expects to complete that task by the end of the month, after data from the U.S. Census Bureau comes in detailing holiday sales in December.

“There is no sign of a downturn momentum from 2019 carrying into 2020. The consumer continues to be the driver,” Kleinhenz said Monday at NRF’s Big Show, adding that the “labor market has been impressive.” He believes that wage growth in some sectors has risen 3 percent to 4 percent.

“People have confidence in their jobs, which is important to feeling secure about jobs and secure about their income,” Kleinhenz said, adding that the “consumer has the ability to spend vis-a-vis their income.”

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The U.S. economy is still feeling the lagging impact of headwinds entering 2020. But there’s a chance those headwinds could turn into tailwinds later in the year, according to Steven Blitz, investment strategist at TS Lombard. “I think the second half of this year will be much stronger than the first half,” he said.

Blitz believes the surprise will come later in the year because of the end of “overt hostility” from China and the signing of the U.S.-Mexico-Canada trade agreement. “Wage growth will accelerate much faster than last year,” he predicted.

“If the [Federal Reserve] lowers interest rates, we’ve sunk into a recession,” Blitz said, but he doesn’t foresee that happening. Traditionally, tightening of rates going into the election in November is good for the incumbent president because it means the economy is strong, while an easing would have the opposite effect.

How well the economy is doing during the middle of the year could foretell the outcome of the election.

“How we do in July will indicate who wins the election. Where [the economy] sits in July is how people will vote in November,” Blitz said.