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Uncertainty Abounds

A lack of certainty makes life more complex for most people. Unfortunately, uncertainty is to be found everywhere one looks at present. Will there be a second U.S. government shutdown in 2019? Will the next round of tariffs take effect in March? Will the UK crash out of the European Union without an agreement or will the decision be kicked down the road for a few additional months? Will the recession in Italy and expected recession in Germany be as short-lived as many are hoping? And how much will it cost to ship a container once the International Maritime Organization 2020 low-sulfur rules kick in on January 1 of next year?

It appears that this uncertainty is having an impact on the psyche of the North American consumer. In the United States, polls showed that consumer confidence in January was lower than it had been in November and December but still high. And factors that stoke uncertainty, such as the wildly swinging stock market, appear thus far to be offset by reports of solid job growth, high wages and reduced gasoline prices. The National Retail Federation stated that “consumers are in better shape than any time in the last few years” and has forecast that 2019 will see an increase in U.S. retail sales of between 3.8 and 4.4 percent. In Canada, Statistics Canada reported that November retail sales fell by the largest degree seen in seven months while the National Bank of Canada stated that it anticipates real consumption growth in 2019 to increase by just 1.3 percent, which would be the lowest level seen since 2009.

How then do we model this uncertainty? For a start, we must once again assume that cooler heads will prevail and that there will be a resolution to the U.S.-China trade dispute and that the scheduled tariff rate increase, from 10 percent to 25 percent on $200 billion worth of Chinese imports, is avoided. At the same time, we must also acknowledge that retailers and other businesses will try to bring some additional cargo in ahead of the deadline.

Our short-term outlook is improved: despite everything, the engine continues to kick over and both the U.S. and Canadian economies power on, albeit at a reduced rate. Projected weakness in the fourth quarter of 2019 relative to 2018 reflects the cargo shipped ahead of anticipated tariffs last year rather than a downturn in the economy.

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