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Chinese economy, wealth disparity in US could impact 2019 retail performance

The economic connections between the U.S. and China, as well as a widening disparity between rich and poor consumers in the U.S., could threaten results at consumer companies in 2019, economists said at the National Retail Federation's 2019 Big Show on Jan. 14.

Economic indicators showing low unemployment, high consumer confidence and steadily increasing wages suggest that the economy remains strong heading into the new year, the economists said.

But 2019 could be different, they added. A number of factors threaten the robust U.S. economy and results at retail companies going into the new year, said National Retail Federation Chief Economist Jack Kleinhenz.

Many consumer companies are holding off on making major investments abroad until U.S. officials strike a permanent deal with their Chinese counterparts on tariffs. If they fail to do so, duties on consumer products that U.S. companies import from China could go up, Kleinhenz said during a briefing on the economic outlook for the U.S. retail sector.

That decision to wait "might delay a bit of the investment that we so need in the economy," Kleinhenz said.

Talk of trade tensions and tariffs has percolated at the National Retail Federation's 2019 Big Show, which has brought together executives from Walmart Inc., Target Corp., Alibaba Group Holding Ltd., Lowe's Cos. Inc. and other retailers.

A slowing Chinese economy could also pose a risk to the U.S., said Steven Blitz, chief U.S. economist at TS Lombard. Since the last economic crisis, corporate debt has risen at a much faster rate than consumer debt. Among the drivers of that debt growth is the increasing investment of U.S. companies abroad in an effort to grow revenue, Blitz said.

That could mean that the largest foreign economies, particularly China, could determine when and how a recession begins in the U.S., he added.

"This could be the first U.S. recession made in China," Blitz said.

Broadly, the retail industry will continue to reshape along increasing wealth and income disparities in the U.S. in 2019, KPMG LLC principal and Chief Economist Constance Hunter said.

About 90% of households have lower wealth than before the financial crisis of 2008-2009, and many middle-income jobs have disappeared, Hunter added.

Those pressures will likely pose a challenge for consumer companies that primarily produce and sell products for the U.S. middle class, Hunter said.

"It's going to make the middle-segment product that much more challenging to produce and sell profitably," she said.