The damage of the commercial war accumulates the weight of the global economy in the consumers

NEW DELHI: There is a lot of weight on the shoulders of shoppers around the world, and the tension is starting to show.

As threats to demand ranging from commercial tensions between the United States and China to Brexit affect business confidence and investment, consumers are proving to be the main drivers of global growth. JPMorgan Chase u0026 Co estimates that global retail sales volumes charged in advance at a rate of 4.8% in the last quarter, driven by labor markets still tight.

But there are signs that could change soon, as manufacturing weakness seeps into hiring, and financial markets tense amid the trade war . Both forces could lead to households shrinking, which will fuel fears that the world economy is heading for recession. Morgan Stanley economists are already warning that American consumers are all that stand in the way of a US contraction.

It would be a mistake to believe that manufacturing weakness will not seep into the rest of the economy, even though factories are a relatively small part of American production, said Gregory Daco, chief economist at Oxford Economics.

Last week there was a big warning, when concerns about tariffs and inflation helped reduce the sentiment index of the University of Michigan in almost seven years.

If that is the beginning of a new failure in the global consumer-centered economy, that means deeper problems for global growth.

A key risk is to unravel the solid history of the labor market in advanced economies.

Surveys show that factory employment is declining worldwide. Germany, at risk of recession, has seen initial signs of weakness in its labor market, the feeling of the United Kingdom is being hit by the uncertainty of Brexit, and Asian economies such as Korea and Indonesia have registered declines in consumer feeling .

In the United States, a key measure of factory employment at the Institute for Supply Management fell in August to a minimum of three years, indicating that manufacturers are cutting jobs, according to a report released Tuesday. Monthly employment figures in the United States Department of Labor must be submitted on Friday.

What economists say

" Consumer spending It will be the main driver of growth in the second half, so the barometers of household demand, such as sentiment, saving patterns and income growth, will be the main focal points in the medium term. For this reason, the cooling in the ISM employment sub-index deserves observation, says Carl Riccadonna, chief economist of the United States.

For central bankers, the question is whether other parts of the economy can continue to resist the storm that has been largely isolated in manufacturing, or if it is an inevitable infection. The way they measure that threat of spillage could be central to the amount of stimulus they need to pump their economies.

The president of the Federal Reserve Bank of San Francisco, Mary Daly, noted the contrast in the economy last week, saying that uncertainty has hurt business investment, but domestic demand seems really strong.

US consumer spending increased 0.6% in July, exceeding estimates, according to a Friday report, after the best quarter in more than four years. In the euro area, retail sales are increasing at an annual rate of approximately 2%, slightly faster than the average in 2018.

But the situation could shift as the punches to the global economy keep coming with President Donald Trump’s escalation of the US-China trade war , weaker corporate earnings, a manufacturing recession and Brexit.

In the US, the University of Michigan gauge showed how the trade war may have a psychological effect, with tariffs spontaneously mentioned by one-in-three consumers.

Consumer uncertainty

The US electronics retailer Best Buy Co last week cut its orientation due to the general uncertainty related to the overall buying behavior of customers in the second half of the year.

Pressured by a trade dispute with Japan and the current weakness of the labor market, Korea's sentiment indicator fell to its worst level in August since the beginning of 2017. Unemployment in a maximum of 45 years is seriously affecting consumption in India, where the car Sales plummeted more in almost two decades in July.

At its last policy meeting, the governing board of the European Central Bank noted the weakening of hiring intentions and raised the question of how long the labor market would continue to publish positive surprises.

This labor market channel is a key route through which the fall in manufacturing could become a deeper recession. In addition to job cuts in industry, business services companies could lose contracts, which would also force the reduction of personnel. As the employment situation worsens, it affects households, which cut expenses, removing the legs of a large pillar of support.

You're starting in a scenario of strong job growth, said Andrew Hollenhorst, chief economist at Citigroup in the United States. So you have this fundamental part of the very solid economy, that is the American consumer, and then you have all kinds of downside risks.