US: Trade worries persist, but current economic data still looks firm – RBC

According to analysts at Royal Bank of Canada, US-China trade tensions will continue to dominate concerns about the go-forward economic backdrop.

Key Quotes

“It should keep focus from a data-perspective on the US industrial sector, which has borne the brunt of Trump Administration tariff hikes to-date and has already been looking wobbly.”

“But for all the (legitimate) concern about trade tensions and subpar industrial output/sentiment data, it is easy to forget that broader macroeconomic conditions still look pretty solid.  The US unemployment rate is sitting just above multi-decade lows.”

“The story is similar in Canada – with the exception that Canadian industrial output (particularly manufacturing output) has looked a touch firmer than in the US year-to-date.  We don’t expect that to last.  Slower US industrial activity will ultimately spill over into slower Canadian growth as well.  But, like in the US, the rest of the economy has looked decidedly firmer.  Employment in July ticked lower, but was still up (an unsustainably strong) 353k from a year ago.  The unemployment rate is still sitting around multi-decade lows and wage growth has strengthened.”

“The Bank of Canada’s officially ‘neutral’ stance on future interest rate changes will be tested by escalating global trade tensions since their last rate decision.  And market interest rates have already fallen dramatically alongside sharply lower bond yields abroad.”

“To be sure, there are still risks to the economic outlook going forward, but that doesn’t change the fact that current conditions still look okay.”