Tinier tax refunds hurt ritzy shops more than discounters

Lower, slower income tax refunds that have dragged on retail sales this year are disproportionately hurting upscale stores, since high-income shoppers are more likely to get an unexpected bill from the Internal Revenue Service under changes backed by President Trump and congressional Republicans.

February revenue at U.S. retailers fell 0.2 percent from the month before to $506 billion, the Census Bureau said Monday, and merchants placed much of the blame on cold weather, stock market fluctuations, and shrinking refunds after a GOP-led tax overhaul that eliminated or cut many of the deductions once claimed by people earning $100,000 a year or more.

Those changes, and Treasury Department efforts to buoy take-home pay through adjustments to withholding tables, left some taxpayers getting little to no money back from the IRS and often having to make surprise payments.

The total number of payouts issued so far this year is down 2.6 percent from the same period in 2018, according to IRS data, and the amount has dropped 2.9 percent to $191.9 billion. The refunds have already become a talking point in the 2020 presidential race, and a CNN poll last year showed the tax bill — which granted a large break to businesses — dragged on Republicans in the 2018 midterms when voters gave Democrats a majority in the House of Representatives.

“We see the most risk to households in the upper-income demographics, particularly those that live on the coasts, as they likely get impacted” by limits on state and local tax deductions, said Michael Lasser, an analyst with Swiss lender UBS. That weighs on retailers such as Restoration Hardware and Williams-Sonoma, while leaving discount stores such as Walmart unfazed, he said.

It’s “something that we’re watching closely,” Jack Preston, senior vice president for finance at Corte Madera, Calif.-based Restoration Hardware, told investors and analysts last week. “We’ve heard anecdotes of people being surprised with the tax bills as they prepare their tax returns.”

Overall, however, store owners remain optimistic about the rest of 2019, according to the National Retail Federation, which represents businesses contributing $2.6 trillion a year to the U.S. economy. The group’s chief economist, Jack Kleinhenz, noted that original estimates for January sales were revised upward and that online merchants saw gains compared with both the previous month and February 2018.

“The consumer has not forsaken the economy as some previously claimed,” he said in a statement. “We still expect growth to pick up, fueled by strong fundamentals like job and wage growth.”

The jobless rate remained at 3.8 percent in February, near a 50-year low, and average hourly pay grew 3.4 percent to $27.66, according to the Bureau of Labor Statistics.

Washington Examiner

Booming jobs market is leaving the retail industry behind

  • Despite strength in jobs from manufacturing to medicine, retail is one of just two sectors that have lost jobs over the last few years.
  • Since January 2017, retail has lost more than 140,000 jobs; the sector added to those losses in March 2019, according to Labor Department data.
  • “Retail is a sector where automation has been particularly present,” said PGIM’s Nathan Sheets. “U.S. consumers have manifest over many years that they want low prices, even if that means less help from workers on the floor.”

Though many American industries have ramped up hiring in recent years amid a strong economy and easier regulations under President Donald Trump, one sector in particular has lagged the rest: retail.

Since January 2017, retail has lost more than 140,000 jobs; the sector added to that in March 2019 with a loss of more than 11,000, according to Labor Department data. The sector is one of just two industries that have lost jobs over the last few years, according to data tracked by CNBC.

For example, an aging baby boomer population has fueled employment in the health-care industry, while the post-crisis business sector has supported the addition of tens of thousands of jobs per month. The government’s Friday report on the employment situation showed the health care sector alone added 61,000 jobs in March, while the business industry tacked on another 37,000.

Despite strength in jobs from manufacturing to medicine, retail is one of just two sectors that have lost jobs over the last few years. Since January 2017, retail has lost more than 140,000 jobs; the sector added to those losses in March 2019 with a loss of more than 11,000, according to Labor Department data.

The lukewarm performance in the retail sector have come despite a broader economic groundswell, with Trump’s corporate tax cuts giving businesses a balance sheet boost, goosing GDP growth above the rate many economists feel is sustainable.

The utilities sector, the only other to have seen a net decline in jobs since 2016, employs less than 1 million people. Retail employs more than 15 million.

Automation effect

Theories on the employment softness range from analyst to analyst, most agree that the downtick in the number of people working at big-box retail locations has to do with the rise of e-commerce and technology.

“Broadly speaking, retail is a sector where automation has been particularly present. Self-checkouts are now common. If you’re not sure about a price, you scan the bar code rather than asking a worker,” Nathan Sheets, chief economist at PGIM Fixed Income.

As an example the thriving shift toward automation at retailers nationwide, Walmart announced earlier this year that it is expanding its “Scan & Go” technology to an additional 100 locations across the U.S. For consumer staples like groceries that customers still don’t feel comfortable purchasing online, Kroger’s new “Scan, Bag, Go” platform will allow shoppers to scan their items themselves and allow the chain to cut cashiers at 400 locations.

Gap, Victoria’s Secret, J.C. Penney, Tesla and Abercrombie & Fitch have all announced that they’ll be closing locations in 2019; 4,810 store closures had been announced by retailers by March 2019, according to Coresight Research.

The push toward automation checkouts comes as major retailers and supermarkets come under pressure to generate even more profit out of a razor-thin margin business while offering customers a unique shopping experience.

“As a related point, the ongoing shift in retail from bricks and mortar to online very much reinforces this trend. For online sales, you largely eliminate customer-facing employment,” Sheets added. “U.S. consumers have manifest over many years that they want low prices, even if that means less help from workers on the floor.”

Perhaps emblematic of the struggles of some retailers to keep up in the modern era, the October bankruptcy filing of Sears Holdings represented for many economists a key moment in the shift toward a leaner business model.

Others, like National Retail Federation chief economist Jack Kleinhenz suggested that the government data may not suggest a decline in retail business, but rather a shift in the types of people they employ.

“You could now have a major retailer that owns a warehousing and distribution center, and products never go through a store,” Kleinhenz said. “There has been improvement in productivity and the use of technology. I caution us to be unnerved by these numbers at this point in time.”

“The retail industry is actually in sync with the economy and is growing at a pace that is appropriate, but we have to broaden our scope” of how we measure it, he added.

Instead of employees lining up at brick-and-mortar store locations, the rise of e-commerce is driving demand for transportation and warehousing staff. A current driver shortage beleaguers the trucking industry thanks to a combination of low compensation, burdensome schedules and conditions of the job.

But amid a new generation of consumers accustomed to smartphone shopping and two-day shipping, retail demand for storage square footage is soaring. Some savvy investors, such as Blackstone’s Jonathan Gray, have actually poured money into the warehousing business in an effort to preempt the broader trend and capitalize off the scaling need for space.

Gray told CNBC in July that the firm had purchased more than 550 million square feet of warehousing since 2010.

“As you think about investing, you’re trying to think about sort of where the puck’s going to, what’s happening. We came to a simple view that online sales were going to grow,” Gray said from the Delivering Alpha Conference in New York in 2018. “As a result, we’ve seen this pickup in demand for warehouse space, which traditionally was a pretty boring business.”

“In an environment where it’s hard to invest, finding things you have high conviction in, where you think there’s going to be growth – that’s a pretty good strategy,” he added.

NRF: RETAIL SALES RECOVERED IN JANUARY

Retail News

 The numbers exclude automobile dealers, gasoline stations and restaurants.

“Retail sales recovered in January after the unexpected drop in December, reinforcing a positive start to 2019,” says Jack Kleinhenz, chief economist, NRF. “American consumers regained confidence as concerns over the government shutdown and stock market volatility faded and trade talks moved in a positive direction. Although some hesitancy is still lingering, it is good to see consumer spending showing traction given the concerns on the minds of American families last month. We expect higher wages and low unemployment to continue to promote consumer confidence in the year ahead.”

As of January, the three-month moving average was up 2.7 percent over the same period a year ago. The January numbers follow an unexpected revised 0.1 percent drop in December year-over-year. November (the first half of the holiday season) grew 5.1 percent unadjusted year-over-year.
NRF does not count October as part of the holiday season, but much holiday shopping has shifted earlier, and October was up 5.7 percent year-over-year.

“Retail sales in December were revised even lower, but these figures remain suspect given the reporting delays caused by the government shutdown,” says Kleinhenz. “The January rebound further calls into question the accuracy and reliability of the December data. The processing of the delayed data is still unclear, and the volatility of the figures reported is difficult to explain at this point.”

The results come as NRF is forecasting that 2019 retail sales will grow between 3.8 percent and 4.4 percent to more than $3.8 trillion. The forecast will be monitored and subject to revision as more data is released in the coming months.

NRF’s numbers are based on data from the U.S. Census Bureau, which reported that overall January sales, including auto dealers, gas stations and restaurants, were up 0.2 percent seasonally adjusted from December and up 2.3 percent unadjusted year-over-year.

Specific retail sectors during January include:

  • Building materials and garden supply stores were up 10.4 percent year-over-year and up 3.3 percent month-over-month seasonally adjusted.
  • Online and other non-store sales were up 6.3 percent year-over-year and up 2.6 percent month-over-month seasonally adjusted.
  • Grocery and beverage stores were up 4 percent year-over-year and up 1.1 percent month-over-month seasonally adjusted.
  • General merchandise stores were up 3.2 percent year-over-year and up 0.8 percent month-over-month seasonally adjusted.
  • Health and personal care stores were up 2.4 percent year-over-year and up 1.6 percent month-over-month seasonally adjusted.
  • Clothing and clothing accessory stores were up 2.1 percent year-over-year but down 1.3 percent month-over-month seasonally adjusted.
  • Furniture and home furnishings stores were down 2.5 percent year-over-year and down 1.2 percent month-over-month seasonally adjusted.
  • Electronics and appliance stores were down 3.2 percent year-over-year and down 0.3 percent month-over-month seasonally adjusted.
  • Sporting goods stores were down 6.2 percent year-over-year but up 4.8 percent month-over-month seasonally adjusted.

March 18, 2009

License News

NRF economist sees better days for retailers amid digital reinvention

The man from Cleveland strolled into a Manhattan shop hunting for two items: an overcoat and an overview. The first would shield him from the chill. The second would provide him even more intel on the state of American retail.

Jack Kleinhenz bagged both.

“I love the social interaction of the stores,” says Kleinhenz, chief economist for the National Retail Federation and principal of Kleinhenz & Associates, a financial consulting and wealth management firm based in Ohio. “It’s entertaining for me. Of course, that’s probably because of my job.

“I like to go in and just observe. On that visit, I tried on a coat and talked to some sales associates. I asked them how things are going, what’s new and how they’re doing.”

What he heard: They’re doing better.

Kleinhenz was in New York to attend NRF 2019: Retail’s Big Show. The industry’s annual, flagship event drew nearly 40,000 people to the Javits Center in January to see, sample and sell the latest retail goods and gadgetry.

In New York, Transform sat down with Kleinhenz to hear his views on the moods of both the sellers and the shoppers.

TRANSFORM: Heading into 2019, how hungry are consumers to spend their money in the stores and online?

JACK KLEINHENZ: The consumer is in a good place.

Financially, many households are in good shape. The ratio of monthly financial obligations to disposable income is still low, equal to what we saw 30 to 40 years ago, (according to the Federal Reserve Board). I think many people generally feel more secure – as far as their jobs and their balance sheets.

More broadly, we have some tailwinds going into 2019. We’re at near full employment. Wages have been increasing. Lower gas prices put more money into people’s hands to spend. And we’ve had some tax benefits, although it will be interesting to see what happens with tax refunds.

NRF chief economist Jack Kleinhenz speaks into a microphone.
NRF chief economist Jack Kleinhenz. (Photo by Jerry Masek)

TRANSFORMNew tech is front and center at NRF 2019: Retail’s Big Show. Which of these technologies have the greatest ability to elevate the retail companies that embrace them?

KLEINHENZ: It’s a great question but it’s hard to measure right now. I am seeing some interesting applications, specifically of AI and robotics.

Among the retail startups here that are using these new technologies, I’d say 15 to 20 percent of these firms could potentially be very, very successful over time.

Just look at what they’re doing. They’re making it easier and more cost effective for the retailer – and they’re making it attractive for the consumer.

TRANSFORM: What does it say to you that so many companies are investing in digital reinvention?

KLEINHENZ: That we’re not standing still.

You know, I love this line from (former racing star) Mario Andretti: ‘If everything seems under controlyoure not going fast enough.’And if (standing still) is the case, I think those companies have to move and they have to move fast. They can’t stand on their laurels. They can’t continue to operate as they have been.

TRANSFORM: What predictions about the digital revolution in retail have not come true?

KLEINHENZ: A few years ago, people would say: ‘Well, e-commerce is going to take over.’

What have we seen? We’ve seen a lot of convergence between e-commerce and bricks-and-mortar stores. They’re learning how they can be more effective in attracting consumers by having a store presence.

Retail firms are thinking: ‘No matter where I get sales, no matter what channel I get sales, that’s where I’ve got to go. So I have to do multiple channels.’ You’re not going to lose the consumer’s interest in actually going to a store, picking up an item, seeing and using that item in person.”

TRANSFORM: When you shop, what technologies do you use?

KLEINHENZ: I’m a multi-channel user. I go online and look at specific stores.

For successful e-commerce companies, if they can get you to their website, you become more loyal to them. That’s how they’re going to be successful rather than just having a consumer type a certain product into their browser and then seeing what that browser tells them.

For retailers, it’s all about creating that loyalty and that relationship. For me, I am a loyal customer of a number of retailers. I will shop online. But I also go to the stores. In fact, last weekend, I spent all day Saturday shopping with my wife, looking for an overcoat. And I found a good fit at a good price – a good day.”

Nearly 1 in 8 Jobs Added in November in Retail, Says Report

A good chunk of the jobs created in November were in retail — likely to keep up with holiday sales — says the National Retail Federation.

Employment in retail was up by 18,600 jobs in November, seasonally adjusted from October, said the Federation. That means that of 155,000 jobs created in the overall economy last month, nearly one in eight were in retail.

Calling the retail jobs numbers “satisfying,” the federation’s chief economist, Jack Kleinhenz, said in a statement that the boost came during and after the wildfires in California and bad weather in other areas of nation, all of which likely dragged on the sector.

The numbers were a good sign, given the context of the overall economic and national picture, he said.

“In retail, the tight labor market has created sizable challenges in hiring – there are actually more retail jobs available than there are people to fill them. Retailers would hire more workers if they could find them,” said Kleinhenz, in a statement.

Still, compared to last year at the same time, unadjusted retail employment dipped by 16,300 jobs, said the group.

And, the Department of Labor, in its job report, noted that “retail trade employment changed little” in November, noting that most of the jobs created were in health care, manufacturing, transportation and warehousing.

The total employment numbers across all sectors released Friday by the Labor Department were considered a disappointment by many, as projections were for a bigger boost.

The jobless rate for retail was 4.2 percent; the unemployment rate overall remained unchanged at 3.7 percent.

Of the total positions in retail in November, most were at department stores, warehouse clubs and other general merchandise shops, while the rest were at a variety of merchants and in online sales. Many jobs were lost at sporting goods, hobby, electronics and appliances stores, according to the federation.

The group predicts up to $721 billion in retail sales over this holiday season.

Stocks are plummeting, but a U.S. recession doesn’t look imminent

Consumer sentiment has remained strong all year despite political head winds and market jitters.

Washington Post

By Heather Long
December 4
Alarm bells sounded on Wall Street this week as something happened that hasn’t occurred in a decade: The U.S. yield curve inverted. This is one of the most reliable predictors of a recession, and it spooked investors enough to send the Dow down almost 800 points (along with the realization that President Trump’s trade “deal” with China is flimsy, at best).

But this doesn’t mean a recession is happening tomorrow or even in 2019.

Roughly 70 percent of the U.S. economy is powered by consumer spending. As long as consumers are happy and opening their wallets, the economy will keep growing, and right now, consumers are in very good shape.

Here’s what happened Monday: The yield (amount of interest) on the two- and three-year U.S. Treasury bonds moved above the yield on the five-year Treasury bond. Inversion is when a short-duration bond yield is suddenly worth more than a long one.

“A flattening yield curve traditionally has been seen as a sign that investors expect future growth to weaken,” Vincent Heaney, Jon Gordon and Chris Swann of UBS wrote in a client note. “An inverted yield curve is seen by some as an early warning sign of an impending recession.”

[Trump has won little from China so far. There isn’t an ‘incredible’ deal yet.]

As UBS noted, this is an early warning sign, and it could take years for the recession to materialize. Consider that the three-year bond yield moved above the five-year in August 2005, yet the Great Recession didn’t begin until December 2007.

According to many Wall Street analysts, this week’s inverted yield curve isn’t a reason to panic but is another sign that the U.S. economy is probably peaking. Growth is widely expected to slow somewhat next year and even more so in 2020.

How much and how quickly the economy tapers is going to depend on U.S. consumers.

“This is the most confident American consumers have been in 18 years,” said Lynn Franco, director of the team that produces the Conference Board’s Consumer Confidence Index. “Just on holiday gifts, consumers plan to spend around $627 this year versus $560 last year, one of the strongest jumps we’ve seen.”

U.S. household incomes are rising as more people find jobs, and wage growth is at the highest nominal level in nearly a decade. More than 2.7 million more Americans are employed now vs. a year ago, the biggest gain since 2014. In many communities, people see visible signs of the economy’s strength when they view so many “We’re hiring!” signs around town. Franco says good job prospects are a key driver of consumer sentiment.

Consumer sentiment has remained strong all year despite political head winds and market jitters. People appear to be focusing on their own improving financial situations and not the headlines.

“Consumers have been pretty accurate forecasters of a recession,” Franco said. “There is usually a sharp decline in expectations for the future, followed by a decline in how consumers view the present situation.” But she said she’s not seeing that now.

On top of job and wage gains, many Americans have more money in their pockets from tax cuts. The typical middle-class household, earning $49,000 to $86,000 a year, received a $900 tax cut this year, according to the nonpartisan Tax Policy Center. Earlier this year, there were concerns that higher gas prices were eating up a substantial chunk of the tax savings as families had to shell out more money at the pump, but gas prices have fallen sharply in recent weeks and are now at a lower level than they were a year ago, according to the U.S. Energy Information Administration. It’s another factor helping consumers feel better off and making them likely to spend more.

“The recent drop in retail gasoline prices is poised to lift disposable income in the coming months,” said Neil Dutta, head of Renaissance Macro Research. “Disposable income is the main driver of consumption.”

[1 million Americans live in RVs. Meet the ‘modern nomads.’]

The brighter mood and fatter pockets of U.S. consumers are helping boost retail sales, according to Jack Kleinhenz, chief economist at the National Retail Federation. He expects retail sales to grow at least 4.5 percent this year, which would be the largest gain since 2014. His figures don’t include spending on gas or restaurants, so they are a good barometer of how much Americans are spending online or in brick-and-mortar stores.

If there’s a head wind for consumers, it’s debt. Household debt — mortgages, student loans, auto loans, home-equity lines of credit and credit cards — has now topped $13.51 trillion, which is above the previous peak from 2008, just before the worst of the financial crisis hit. Student loans often get the most focus since nearly 1 in 5 adults have some sort of student debt. Experts say it’s a clear hindrance, but they are encouraged that credit card and mortgage debt remain in check this cycle.

“People are using credit in a prudent way. They aren’t loading up on their credit cards,” Kleinhenz said. He pointed out that household debt as a percent of household income is low by historical standards.

An early warning sign could be car loans. Auto loans that are 90 days delinquent just hit the highest level since early 2012, according to New York Federal Reserve data. Auto loan delinquencies have steadily risen in the past six years, even as the economy has improved. It is a likely indication that lower-income Americans are still struggling, even though many states and the nation’s two largest employers — Walmart and Amazon.com — have lifted their minimum wages.

But Dutta of Renaissance Macro Research pointed out that disposable income has been rising 3.1 percent in the past five years while consumption has risen 3 percent, meaning a lot of people are living within their means. Dutta said that is a “dramatic departure” from the late 1990s and early 2000s, when consumption outpaced income by a sizable amount.

This week’s inverted yield curve is a reminder that the economic head winds at home and abroad are picking up. But experts say to watch the consumer for the best gauge on the U.S. economy’s health. So far, most signs point to ongoing strength.

RETAIL Online Spending Could Top $124B Over The Holidays

Kusama “Infinity Mirrors” and FRONT International helped art museum break attendance, membership records

CLEVELAND, Ohio – Attendance boosted by the popular Yayoi Kusama “Infinity Mirrors” exhibition and the FRONT International: Cleveland Triennial for Contemporary Art this year helped the Cleveland Museum of Art break a 26-year record for the number of visitors attracted in any single summer.

Between July 1 and September 30, the museum said it attracted 305,692 visitors, the largest summer total in the institution’s 102-year history, and the largest since the same period in 1992, when the exhibition “Egypt’s Dazzling Sun: Amenhotep III,” helped the museum pull in 290,000 visitors.

Visitors this summer came from all 50 states and 23 foreign countries, generating $6.9 million in museum revenues, including $2.3 million in new memberships, the museum announced Thursday.

“We were really thrilled to see so many people come from so far away as well as close to home to celebrate the summer with us,” said Elizabeth Bolander, director of audience insights and services at the museum, who described the new information in an interview Wednesday.

The Amenhotep exhibition, organized to celebrate the museum’s 75thanniversary, drew 186,139 visitors, far more than the 120,000 attendees for the Kusama show, which surveyed the artist’s 65-year career.

The museum had to limit the number of attendees for “Infinity Mirrors,” which involved circulating small numbers of viewers in and out of specially constructed mirror rooms in 30-second shifts.

But with FRONT and other exhibitions and a full calendar of events and programs, the museum cruised past its 1992 summer attendance record.

The museum reported that it topped 30,000 memberships this summer for the first time in its history, exceeding the total of 29,491 membership households reached on June 30, 2016, the middle of the museum’s centennial year.

Shows during that period included “Painting the Modern Garden: Monet to Matisse,” and “Pharaoh: King of Ancient Egypt.”

The museum said it created 120 temporary jobs to support the Kusama exhibition, and recruited 100 volunteers.

Data crunched by Cleveland economist Jack Kleinhenz show that the Kusama exhibition contributed $5.5 million in economic impact in Cuyahoga County.

The figure includes $3.2 million in direct spending by visitors from outside Cuyahoga County, plus additional sums calculated for the ripple of indirect and induced spending triggered by the new dollars flowing into the local economy. The increased spending created 58 new jobs in the county, according to the analysis.

Kleinhenz said the data were calculated from 732 visitor surveys, which represented a 33 percent response rate among those polled by the institution.

Figures extrapolated from the survey indicate that 44,522 visitors came to see the Kusama show from outside Cuyahoga County.

“It goes beyond pure economics,” Kleinhenz said of the museum’s impact on Cleveland and Northeast Ohio. “It’s such a unique brand, like the Cleveland Orchestra, the Cleveland Browns and the Cleveland Clinic.”

Bolander said the summer of 2018 helped the museum understand how its recently expanded and renovated complex could accommodate a million visitors a year – a major goal of a new strategic plan unveiled in 2017.

Attendance has averaged 630,000 in recent years. Attendance this summer – if annualized – would nearly double that number.

“It was actually very exciting this summer,” Bolander said. “We were able to test if, you will, what it meant to be at that level of attendance for a sustained period.”

By Steven Litt, The Plain Dealer

CNBC FED SURVEY: FED EXPECTED TO HIKE RATES TWICE MORE THIS YEAR AND THEN RISK A ‘POLICY MISTAKE

CNBC

Fed expected to hike rates twice more this year and then risk a ‘policy mistake’: CNBC survey

  • Nearly all respondents to the CNBC Fed Survey see the Fed hiking rates a quarter point this week to a new range of 2 to 2¼ percent.
  • In addition, 96 percent believe another quarter-point hike is coming in December.
  • About 60 percent see the Fed eventually raising rates above neutral to slow the economy.

Steve Liesman | @steveliesman

Look out for two more rate hikes this year from the Federal Reserve to go along with economic growth nearing 3 percent and a central bank that eventually raises rates explicitly to slow growth, according to respondents to the latest CNBC Fed Survey.

A full 98 percent of the 46 respondents, who include economists, fund managers and strategists, see the Fed hiking rates a quarter point this week to a new range of 2 to 2¼ percent. And 96 percent believe another quarter-point hike is coming in December.

“Fed funds increases in September and December are as certain as certain can be,” John Donaldson, director of fixed income at Haverford Trust, wrote in his response to the survey. “Their real challenge starts after the first increase in 2019, which will bring the rate to 2.75 percent, or finally back to even to inflation.”

Respondents see the funds rate rising by two more quarter points (50 basis points) in 2019, which would bring it to a range of 2.75 to 3 percent. After that, divisions set in, with about half the group seeing a third hike in 2019.

About 60 percent of the group see the Fed raising rates above neutral to slow the economy. The average that respondents see the funds rate eventually ending this hiking cycle is 3.3 percent.

“This means that the U.S. bond market will reach a decision point sometime in the next year, when market participants will have to decide whether the Fed will go beyond current market pricing,” said Tony Crescenzi, executive vice president at Pimco. “If and when it does, U.S. Treasuries will move higher.”

A fifth of the group say a “fed policy mistake” is one of the biggest threats facing the expansion, second only to trade protectionism.

“We are in jeopardy of watching trade and monetary policy plunge into a head-on collision, with no one wearing seat-belts, and the airbags have been disabled,” wrote Art Hogan, chief market strategist at B. Riley FBR. “The biggest risk in the market is a policy mistake, and we are working on a two-for-one special.”

Respondents support President Donald Trump‘s handling of the economy by a 61 percent to 30 percent margin, unchanged from the July survey. But 59 percent say his trade policies will reduce growth, and 52 percent say they will lower employment in the U.S.

A slight 53 percent majority also say the president’s negotiating tactics will lead to better trade agreements for the U.S., while 20 percent say they will be worse and 22 percent expect them not to change much.

Overall, the tariff effects on the economy are seen as modest. Among those who see negative effects, the average is just a 0.2 percent decline for GDP in 2019 and a 0.2 percent higher inflation.

But some see more substantial effects.

“The president should be remembered for his cuts in regulations that served the economy so poorly for years but instead will be remembered for his illogical, un-economically justifiable support for trade protection and tariffs. How sad is that?” wrote Dennis Gartman, editor and publisher of The Gartman Letter.

Strong economic growth ahead

But forecasts suggest the president has some room for his trade policies to subtract from growth without doing enormous economic damage. Respondents look for GDP year over year to be up 2.8 percent in 2018, versus 2.2 percent in 2017, and up 3 percent in 2019, defying the general belief in a slowdown next year predicted by many economists.

Inflation is seen ticking up to around 2.5 percent this year and next, while the unemployment rate is forecast to fall to 3.7 percent by 2019.

“Rarely are so many economic gauges of the U.S. economy so strong — including employment, income, retail sales, business spending, manufacturing and small business,” wrote Jack Kleinhenz, chief economist for the National Retail Federation. “The near-term outlook appears to be steady as she goes.”

Respondents see a low 14 percent probability of a recession in the next 12 months.

Stocks are seen growing, but slowly. The average forecast predicts the S&P 500 will rise to 2,956 this year and end 2019 at 3,038. While it would break the 3,000 level, it would represent just a 4 percent gain over the next 15 months.

Treasury yields are seen ending this year at 3.15 percent and 3.45 percent in 2019, suggesting much of the Fed tightening is priced into the bond.

Federal Reserve approves its third rate hike of the year

The move indicates that the nation’s central bank may soon be able to take a back seat for the first time since the 2008 financial crisis and allow the economy to steer itself.

Wednesday’s widely expected rate hike of one-quarter of a percentage point comes after the Federal Open Market Committee’s scheduled two-day policy meeting, and is a response to a robust economic landscape that includes low unemployment, an uptick in wage growth, and sweeping corporate tax reform.

“The near-term outlook appears to be steady as she goes,” said Jack Kleinhenz of the National Retail Federation. “Rarely are so many economic gauges of the U.S. economy so strong.”

The new rate also signals that the White House’s tit-for-tat global trade actions have so far had a muted impact on the nation’s nine-year economic growth streak.

The Fed kept rates artificially low for seven years after the Great Recession, zeroing out the rate in December 2008 and only raising it again in December 2015, under Janet Yellen’s chairmanship. Since then, Yellen raised the benchmark rate by one-quarter of a percentage point just four more times. After taking over from Yellen in February this year, Trump-appointed Federal Reserve Chairman Jerome “Jay” Powell has raised rates three consecutive times.

Chairman Powell has made note of the Fed’s precarious position as the economy heats up, saying last month that the Fed currently faces two main risks — either “moving too fast and needlessly shortening the expansion” or “moving too slowly and risking a destabilizing overheating.”

But Trump slammed Chairman Powell earlier this year, saying he was “not happy” about this year’s series of rate hikes.

“I don’t necessarily agree with it,” Trump told CNBC in July. “I’m not thrilled, because every time we go up, they want to raise rates again. But at the same time, I’m letting them do what they feel is best.”

Wednesday’s FOMC meeting was the first for economics professor Richard Clarida, who was confirmed earlier this month for a four-year term as Federal Reserve vice chairman. The board of governors has three remaining vacancies.

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