Trump Tariffs Tag the Market… Again… In a repeat of a headline from last week, Trump’s tariffs – and Beijing’s retaliatory tariffs – sank the market by more than 600 points on Monday.
What it means – Last week, the markets had their worst day of 2019… until this week. Monday’s performance took the title, although the markets have since recouped most of the loss. Investors are worried about the trade wars. The Trump administration increased the tariffs on $200 billion worth of goods from 10% to 25%, and then identified $300 billion more in goods that could be hit with tariffs by this summer. Then the Chinese retaliated, identifying $60 billion worth of American imports that would be tagged with tariffs. Suddenly the trade war took on a new life and looks like it might be around a while.
Analysts estimate the tiff could cut between 0.5% and 0.75% off of U.S. GDP over the course of a year, and it could cause greater problems in China. The Middle Kingdom reported that retail sales increased 7.2% last month, which sounds great but it’s down from 8.7% in March and represents a 16-month low. When the Chinese slow down, they buy less stuff from the rest of the world, which means the U.S.-Chinese trade war could wash up on foreign shores around the world.
Retail Sales Slipped 0.2% in April, Missing Expectations of 0.2% Growth… Excluding autos, retail sales improved 0.1%.
What it means – The slight gain excluding autos wasn’t a victory, since the estimate was for 1.3% growth. Overall, the report shows ugly weakness across the board, with lower numbers in electronics, home furnishings, and home renovations, as well as building materials. The one area that showed a pop is gasoline, the one you don’t want.
Auto sales dropped 1.1%, which was expected, but it’s still not good news.
Falling retail sales followed weak industrial numbers and drove the Atlanta Fed’s GDPNow second-quarter forecast down from 1.6% to 1.2%. We’re only halfway through the quarter, so there’s a lot of time for things to change. But so far, we’re off to a weak start.
Housing Starts Rose 5.7% in April… Housing starts increased from an annualized rate of 1.168 million to 1.235 million.
What it means – While the headline is good news, housing starts are still 2.5% lower than at the same time last year. Permits, which increased by 0.6% last month, are 5% lower than last year. But there’s still reason to be happy with the April report. While multi-family starts improved 4.7%, single-family starts, which use the most labor, were 6.2% higher.
The unexpected good news was especially welcome in the housing sector, which has been lagging since the end of last year. Higher housing starts implies more inventory available during the next selling season in the fall, which could spark more activity.
Swedish Government Tells Citizens to Hold Some Cash… The Swedish Civil Contingencies Agency sent guidance to all citizens advising them to hold small denominations of cash in case of an emergency.
What it means – For years Sweden has been held up as an example of mostly cashless society. Retailers report that 80% of transactions are card payments, and they expect that number to climb to 90% by next year. The use of cash has fallen 35% since 2013.
Turning to digital dollars allows the government to track spending more easily, increasing tax compliance and affecting the economy through monetary policy. But it’s not all good. The government recognizes that sometimes technology breaks down, and there’s always the risk of power failures. But the advisory had an edge of a warning to it. In addition to unintended issues, there’s also the risk of a cyberattack, where a nefarious operator cripples the electronic payment system in some way.
Apparently, cash can still be king.
Illinois Proposes Legislation to Charge Electric Vehicle Buyers $1,000 Registration Fee… The new fees are part of an increase in all registration fees as well as higher gasoline taxes.
What it means – The state of Illinois needs money to rebuild roads and infrastructure. Typically, the funds come from auto registration fees and gas taxes, but they aren’t indexed to inflation and haven’t kept up with the need. A legislator proposed increasing the registration fee for internal combustion engine cars from $98 to $148, and the gasoline tax from $0.19 per gallon to $0.44. Recognizing that electric vehicle owners don’t pay the gasoline tax, but they do use the roads, the proposal contemplates raising the registration fee on electric vehicles from $17.50 to $1,000.
All fees are to be indexed to inflation, so they will go up over time.
The proposal seems to be a stretch. The difference between the new rate for regular cars and the rate for electric cars is $852. At $0.44 per gallon, a car owner would need to buy 948 gallons of gas to make up the difference. At 25 miles per gallon, that would mean driving just over 48,000 miles, or the distance around the world… twice.
Data supplied by Dent Research/Delray Beach Publishing
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