WASHINGTON — Consumers, fueled by job growth, cheaper gas and higher home values, would drive the U.S. economy through a global slump.
That was the widespread hope just a few months ago. Now, doubts are growing that the United States can withstand economic pressures flowing from overseas. Economies in China, Canada, Brazil and Europe are struggling. Canada, the largest U.S. trading partner, is in recession.
Americans have been holding back on spending even though lower gas prices have put more cash in their pockets. Employers have slowed hiring and held down pay. Home sales have flattened. And the U.S. economy has been hobbled by a stronger dollar, which makes U.S. goods costlier overseas and is depressing corporate profits.
“There’s no question that the economy is losing momentum,” said Mark Vitner, an economist at Wells Fargo. “The question is whether it is temporary.”
As recently as early August, economists had sketched a bright picture for the rest of the year and, as a result, thought the Federal Reserve would be confident enough to raise interest rates from record lows in September. The Fed chose not to. And many economists and investors have pushed back their forecast for a Fed rate hike into next year.
The U-turn in sentiment happened fast. It occurred soon after China made a clumsy attempt last summer to prop up its stock prices then devalued its currency. Financial markets plunged on fears that China’s once-sizzling growth was shakier than anyone had thought and would slow economies elsewhere.
As China’s appetite for oil, copper, iron ore and other commodities has fallen, so have prices for those goods. One consequence is that U.S. energy companies, squeezed by lower oil prices, are buying fewer factory goods.
U.S. factories cut production for a second straight month in September.
Manufacturers are being hurt by a declining appetite for their goods overseas and by cheaper foreign-made products. U.S. exports are down this year compared with 2014, the first year-over-year decline since the Great Recession officially ended in 2009.
Falling demand for U.S. goods hurts even companies that don’t themselves export products. CSX Corp., for example, said its revenue from transporting coal fell 19 percent in the third quarter from a year earlier in part because of reduced coal exports.
The higher-valued dollar is squeezing U.S. corporations’ sales in another way, too: Their revenue in foreign currencies is worth less once it’s converted back to dollars. Walmart, for example, says it expects flat sales this year, partly because of such currency effects. Johnson & Johnson and Monsanto have also said currency exchange rates are depressing revenue.
At the same time, U.S. consumers appear to be pulling back. Sales at retail stores and restaurants dipped in September after a flat reading in August.
Although Americans are snapping up cars at a solid pace, retail sales excluding autos have fallen for two months.
Scott Brown, chief economist at Raymond James, said “middle and lower-end consumers are still struggling a lot.”
