Week In Review
Chinese state media reported that without some significant changes in the U.S. government’s negotiating position there is no point in continuing trade talks. Mnuchin stated that talks will likely continue but that he has no set plans to go to Beijing. The Chinese government pledged to implement further monetary and fiscal stimulus in order to maintain growth in the face of increased tariffs. The Commerce Department announced that it will put Huawei on an “Entity List” which will mean that U.S. chip suppliers to Huawei will need a license to sell to them. Barring chip sales to Huawei would likely cripple the company, which is a key part of China’s strategy to establish dominance in key industries higher up the value chain.
Hopes that the U.S.-China trade conflict would soon be resolved are dimming even further. Barring a significant breakthrough, the conflict seems likely to escalate. Over time, increased tariffs will be a headwind to global growth. Escalating the conflict even further by barring chip sales to Huawei would be a direct attack on China’s development plans and would likely provoke a significant response from China that would include barring sales of rare earth metals to the U.S.
Retail sales fell 0.2% in April, considerably worse than expected. The retail sales control group was unchanged.
Retail sales are not growing as much as anticipated, especially in light of low unemployment. Consumer spending continues to show signs of weakness, and unless the trend reverses soon, future GDP growth could disappoint as well.
New Jersey’s tax collections surged in April, with the state collecting $3.6 billion. The April increase followed lower-than-expected collections at the end of last year and earlier this year. New Jersey Treasurer Elizabeth Maher Muoio indicated that New Jersey could end the fiscal year with a $1.14 billion surplus. The state’s reserve fund and rainy-day fund are expected to receive money from the surplus. The rainy-day fund, due to receive $317 million, has been empty since 2008. The influx of revenue has led some lawmakers to question whether Governor Phil Murphy’s proposed millionaire’s tax should be a part of next year’s budget.
While the April tax revenue number and a current year budget surplus is good news, it is important to note that the April tax collections offset the lower tax collections in prior months. Some of the corporate revenue growth is attributable to one-time revenue according to Muoio’s office. Before abandoning certain facets of next year’s proposed budget plan, New Jersey must determine if the revenue increases and current trends will continue and plan accordingly.