This article was published by The McAlvany Intelligence Advisor on Monday, November 26, 2018:
The report from the Conference Board last Wednesday was gloomy. Said the board’s Director of Economic Research, Ataman Ozyildirim:
The US LEI increased slightly in October, and the pace of improvement slowed for the first time since May. The index still points to robust economic growth in early 2019, but the rapid pace of growth may already have peaked.
While near term economic growth should remain strong, longer term growth is likely to moderate to about 2.5 percent by mid to late 2019.
On Black Friday, U.S. shoppers ignored the Conference Board and went on a shopping spree for the record books. Online shoppers spent more than $6 billion while overall sales totaled $23 billion. That’s almost 10 percent ahead of last year’s Black Friday results.
And it’s likely to get even better. Cyber Monday’s online sales, even as consumers head back to the office, are expected to set a new record as well, at nearly $8 billion, a gain of almost 18 percent from last year. And MasterCard projects that overall holiday sales (from November 1 through December 24, Christmas Eve) should grow by five percent compared to last year.
Part of the bounce, according to naysayers looking for any reason to discredit the economy, is because Christmas falls on a Tuesday this year, giving consumers one more chance to do last minute shopping on the Sunday before. Sales that day are expected to equal or exceed Black Friday’s.
The Conference Board’s report last Wednesday included not only its Leading Economic Indicator – its LEI – but also its Coincident Economic Indicator – its CEI – as well as its Lagging Economic Indicator – its LAG. Not surprisingly, all three showed improvements in October.
But the performance of its LEI was hampered by three of its 10 components, which suffered in October: stock prices, average weekly new unemployment claims, and consumer expectations for future business conditions. None of those 10 components included gas prices, expectations that tariff negotiations might reduce tariffs overall on a world-wide basis, or repatriation of capital from abroad that is likely to accelerate over the next year.
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This is deliberately stretching a point to make a point: the Conference Board serves a useful, albeit short run, purpose. For those looking out beyond the next couple of months, however, other factors come into play when making prognostications about the US economy into 2019. On December 6, for example, OPEC will hold a largely futile meeting in Vienna to discuss what the cartel can do about declining oil prices. Saudi Arabia’s involvement in the murder of Jamal Khashoggi has put OPEC into a bind. It desperately wants to cut production – some rumors are a cut of up to 1.4 million barrels of crude a day – but it fears further incurring the wrath of President Trump if prices start to increase again. In the meantime, U.S. producers (and British Petroleum) are ramping up production even further, as bottlenecks are being resolved in the Eagle Shale and Permian Basin fields, and BP bringing on production from its new site in the North Sea.
As those prices continue to decline, so will gas prices. The national average price for a gallon of gas has dropped nearly every day since early October. For the more than 200 million American motorists, this is a welcome tax-free bonus, just in time for Christmas, and those benefits are likely to continue well into the New Year.
As the Federal Reserve continues on its predetermined path to raise interest rates in order to fight its phantom “inflation” monster, repatriation of funds from overseas will become more and more attractive as an alternative to borrowing for companies’ capital expansion plans in the New Year.
In addition, as China’s economy slows and its leaders become increasingly intransigent in dealing with the American president, U.S. companies that were considering expanding in China are having second thoughts, with many of them expanding manufacturing facilities in the U.S. instead.
Yes, Black Friday’s sales results were great. And Cyber Monday’s sales results are likely to set records as well. And for the holiday season as a whole, the consumer appears to be determined to enjoy his wage increases and his improved confidence in the future by spending at record levels. Looking out into the New Year, other factors not considered by the Conference Board will be kicking in, adding additional legs to one of the longest economic expansions in American history.