U.S. voters witnessed an unusual election with the surprise victory of Donald Trump earlier this month, and significant uncertainties about the future of public policy and the economic outlook remain.
There is no easy way to measure the impact of Trump’s policy proposals on consumers with the limited details available so far, and their exact effect is truly only a speculative exercise at this point. The president-elect is opposed to the Trans-Pacific Partnership trade agreement, says he will impose large tariffs on imports from China and wants to tear up the North American Free Trade Agreement. All of those moves could drive up the price of the imported goods retailers rely on. On the positive side, he supports comprehensive tax reform and has promised to rebuild crumbling infrastructure that currently creates bottlenecks for the retail supply chain. The trade proposals notwithstanding, Trump’s initiatives appear to have the capability to generate a stronger rate of gross domestic product growth, a faster pace of inflation and a higher level of interest rates.
Meanwhile, there is general uncertainty about what these changes could mean for debt and deficits. It will take some unusual craftsmanship to negotiate keeping deficits in check. NRF is leaving its near-term forecast for the economy to expand around 2 percent in the second half of the year unchanged since time will be needed to formulate new policies and to move them through the congressional process. The impact of these policy changes won’t be understood until much later in 2017.
It is unclear how consumers will respond to changes to economic policy. The true impact will not be known until hard data on consumer spending and retail sales are released in the coming months. However, consumers are the driving force of the economy and consumer fundamentals appear to be sound. Favorable spending is expected as a result of favorable job and wage growth and gains in household balance sheets.
October’s strong sales and September’s upward revisions show that consumer spending improved despite the headwinds from the polarizing election and warmer-than-normal weather. Housing surged in October as single-family starts rose to their highest level since October 2007. Consumer prices have accelerated moderately but consumers are still seeing minimal increases, if any, in the purchase of retail goods. All in all, recent data is generally positive and consistent with the assessment that fundamentals are generating an uplift and positioning consumers and retailers for a healthy holiday season.
Download this month’s report, which includes the following charts and highlights:
- Consumer sentiment
- Holiday sales
- GDP and unemployment
- Income and consumption
- Job openings
- Housing market
- Consumer price Index