HOW TO THINK ABOUT IT

Signs abound. Germany’s 0.1 percent contraction last quarter and China’s 17-year-low factory output pace were enough to spook global markets. But multiple other major nations are also seeing negative growth, and could be headed toward a recession. The British economy, for instance, shrank 0.2 percent last quarter after an unimpressive first quarter of meager growth. The economies of South Korea, Brazil and Singapore contracted in the last quarter. Then there’s sluggish motor vehicle manufacturing, which dipped 1 percent globally last year for the first time since 2009. In India — which is still growing — auto sales fell nearly 19 percent last month to a 19-year low, and a million jobs in the auto-components sector are now at risk there. This is bad news because the value chain powered by auto manufacturing — ranging from raw materials and energy to labor and marketing services — is fundamental to the global economy.

A silver lining? Fears boiled over this week when U.S. markets slumped and long-term treasury bond yields weakened. But while Wall Street investors might be jittery, America’s shoppers apparently aren’t. Retail sales jumped 0.7 percent month-on-month in July — a heartening indicator considering that consumer spending comprises some 70 percent of American economic output. “The consumer has played Atlas, carrying the economy,” one analyst told CNBC. But to continue doing that, they warn, people need to stay employed. That’s where current unemployment and wage gain rates, which hover at 3.7 percent and 3.2 percent, respectively, provide encouragement.

Eyes on the prize. Still, most analysts agree that American consumers can’t prop up the global economy on their own. They say it’s up to President Trump and his Chinese counterpart, Xi Jinping, to hash out a trade deal. For now, confident consumers and steady growth might encourage Trump to continue daring both China on tariffs and the Federal Reserve on further cutting interest rates. But that’s a dangerous game, since shoppers appear poised for a hit, even if delayed by a few months, when new tariffs on popular Chinese goods like clothes, electronics and toys finally arrive. The longer the trade war goes on, the more it fuels a vicious cycle that has already damaged the global economy — and could eventually harm the U.S. But then, who’ll be left to rush to the rescue?

WHAT TO READ

How World Leaders Ruined the Global Economy by Steven Rattner in The New York Times
“The deterioration in the economic picture is not the consequence of irresponsible behavior by banks or a natural disaster or an unanticipated economic shock; it’s completely self-inflicted by major world leaders who have delivered almost universally poor economic stewardship.”

Consumers to Bond Market: What, Me Worry? by Justin Lahart in The Wall Street Journal
“Fed policy makers are skeptical of the yield curve’s precision as a forecasting tool but, given their worries about their ability to combat a recession in a low-rate environment, they probably don’t want to take any chances.”

WHAT TO WATCH