American consumers have been carrying the US economy on their backs for years. However, they could use more help from businesses.
Companies cut back on investment in 2019 following the U.S.-China trade fight, which reduced exports and created an air of confusion. Spending on new equipment, offices, software and the like grew by an estimated 1.3% in 2019, far below increases of 6.4% and 4.4% recorded in the past two years.
Business spending is one of the drivers of economic growth. This is in addition to consumer and government spending and net spending by foreigners buying U.S. exports. Therefore, it is evident that the decisions made by CEOs have a broad influence on the U.S. economy.
The good news this year is that a pair of trade deals might ease the boardroom angst and pave the way for more investment.
President Trump last week signed the first phase of what could be a broader trade agreement with China, easing tensions between the world’s two biggest economies. Trump is also expected to put his John Hancock next week on a new deal with Mexico and Canada, replacing the 26-year old North American Free Trade Agreement.
“The U.S. economy will be stronger if trade tensions dissipate and other economies stabilize globally,” said Catherine Mann, chairwoman of the American Bankers Association Economic Advisory Committee and chief economist at Citigroup.
However, more moves might be needed to move the needle, even as top economists at America’s biggest banks predicting business investment will double in 2020 to about 2.4%. In a similar vein, they have estimated consumer spending will slow to 2.2% from 2.7% in 2019 as households seek to increase savings.
However, a consumer pullback is definitely not set in stone. The unemployment rate fell to a 50-year low, with wages rising at a healthy 3% annual pace and the savings rate is already fairly high.
“There are few apparent excesses in the economy today, which is surprising given that we are now well into the 11th year of this economic expansion,” said senior economist Sam Bullard of Wells Fargo.
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