2019 was the year of the U.S. consumer.
When the year started, trade tensions were heating up and recession calls had grown louder. Many investors saw the end of the business cycle coming as the expansion was on the cusp of becoming the longest on record.
Then, the consumer showed up in a powerful way. As shown in the LPL Chart of the Day, consumer spending propelled output growth in 2019, while other sectors of the economy floundered. Gross domestic product (GDP) increased 2.4% on average in the first three quarters of the year, and the economy is poised for its third consecutive year of 2% growth.
Investors had a strong U.S. labor market to thank, given employment is the primary driver of consumer health. Consumer incomes have also benefited from rising stock prices and fiscal stimulus enacted in 2018.
“Trade tensions barely dented consumer activity, leading to a surprisingly steady year for GDP growth,” said LPL Financial Chief Investment Strategist John Lynch. “The U.S. economy proved once again that it can stand resilient against global headwinds on the basis of solid fundamentals.”
Consumer spending was especially strong in contrast to business spending, which dried up for most of 2019. Companies largely backed off from spending in the face of elevated global uncertainty, a logical response given larger corporations’ significant international exposures.
We’re watching for cracks in the consumer outlook. Growth in retail sales and durable goods orders has slowed, showing that U.S. consumers are becoming more nervous as the year wraps up. It’s also possible that U.S. companies could pare back hiring if headwinds significantly weigh on profit margins.
Still, we think the consumer will continue to anchor the expansion in 2020, empowered by a tight labor market and moderate wage gains. We’d ideally like to see business spending pick up, and progress on trade with China may help, but we understand the volatile macroeconomic environment could still dissuade firms from planning capital investments.
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