(Updated with the latest retail sales data from the Commerce Department)

Howard Schneider

Denver, Oct 16 (Reuters) – If the global economy hits a skid, a warning could come from the hop-covered taproom Denver Beer Co, where annual sales are up 17% and founder Charlie Berger says the new “Juicy Freak” India Pale ale is a bestseller despite its $ 1 per pint higher price.

Bars and restaurants have been a mainstay of U.S. economic growth that relies directly on consumer spending, and if businesses like Berger start to slow it’s a short step from there on jobs, wages, business sentiment and global demand.

“These were numbers we couldn’t believe,” Berger said of the growth in its core taproom sales and a 30% jump in production over the past year, to 20,000 barrels, at the company’s main brewery.

If the view from this open-air bar remains rosy, it is against the backdrop of a clearly mixed picture elsewhere in the United States and the world as economists and policymakers take note of what has become a consumer-dependent – and potentially fragile-global growth picture.

The international monetary Fund this week lowered its forecast for global growth in 2019 to 3%, the slowest pace since the global financial crisis more than a decade ago. Officials cited stalled trade and investment as culprits, leaving household spending as the main support for private sector growth.

Now that goes under pressure.

U.S. retail sales fell 0.3 percent in September, the Commerce Department said Wednesday. It was the first drop in seven months as households cut spending on motor vehicles, building materials, Hobbies and online shopping.

In China, shopkeepers have spoken of a decline in demand that has made them more cautious, in some cases delaying personal purchases and amplifying the effect of this uncertainty. Embroiled in a trade war with the United States, China saw its economic growth slow to 6.2% in the second quarter year-on-year, its weakest pace for at least 27 years. Retail sales growth is the weakest since early 2003, and car sales in China declined last year for the first time since the 1990s.

“Our business has not been so good – fewer migrant workers come to our store, so I may have to save up for another two years before I can buy a car,” said Luo Shuzhen, a 48-year-old shop owner in the southern city of Dongguan who had hoped to buy this year.

It’s a decision that, magnified across China, is being felt in Germany, where car exports have fallen, and down the supply chain.

In Japan and Europe, any good news on household spending is overshadowed by a shift in the other direction.

The Bank of Japan’s consumer index rose to its second-highest level on record in August, as evidenced by strong sales of luxury cars, as well as a shift to portions of higher-quality beef among the lunchtime restaurant crowd. But real wages fell for the eighth straight month in August, complicating the Outlook for consumption, which is likely to be further hit by this month’s sales tax hike to 10% from 8%.

German consumers seemed spurred by recent moves by the European Central Bank to support the Eurozone economy, and French consumers by recent tax breaks. But there was some evidence British consumers may be starting to hunker down, shifting spending from restaurants and hotels to food to be consumed at home.

‘STARTNL TO ERODE’

Consumption is always a major part of gross domestic product, accounting for about 70% of production in the United States and about 60% in China, for example. But ideally this is balanced with business investment and investment margin from trade, elements that add not only to current growth but lay the groundwork for future hiring and expansion.

As it stands, the GDP of the 36 countries of the Organization for economic cooperation and development, which includes the United States and most of Europe and accounts for the bulk of the world economy, would have declined in the second quarter of 2019 if not for a strong contribution from consumer spending.

Future growth will depend on how this plays out in the face of slowing global trade, and in particular how American consumers act.

Some politicians have already noted a possible recession in the us manufacturing sector. Although us unemployment was close to a 50-year low of 3.5% in September, employment and wage growth slowed.

“The us consumer is indeed a pillar not only of the US economy, but also of the global economy. If this pillar starts to weaken, then all bets will be off, ” said Gregory Daco, chief U.S. economist at Oxford Economics.

Weakness can be expected to show in early bar and restaurant sales, he said. As of July, spending growth on “food services and drinking places” had reached its slowest pace in two and a half years and had declined for three straight months.

It may seem like a narrow question, but “you get from point A to point B is that if people spend less, restaurants have less income, hire fewer people, be careful about wage growth, and that will feed back into lower costs and then expand into other sectors, whether it’s consumer durables like cars or appliances, or business spending on new hardware or software,” Daco said.

Bart Watson, chief economist at the brewers Association, a coalition of more than 5,000 small producers, said it’s hard to untangle the overall decline in beer production with a steady shift to higher-end beverages produced by companies like Denver beer.

But as part of the overall decline in checkers production of about 8%, there are also “some signs based on weakness” among taprooms that have been Central to this part of the industry’s success, Watson said.

With record numbers of people working and wages still rising, the near future may be all right, keeping Berger’s beer company and the rest of the U.S. consumer complex on track.

But Thomas Kosterg, senior U.S. economist at Pictet Wealth Management, noted that some of his preferred warning signs are flickering. Employment in the trucking industry, for example, has stabilized this year, and when that “starts to flip, it’s a concern. It’s a cyclical part of the economy that’s starting to break down, ” he said.

Trucking has also been a reliable source of middle-wage jobs during the recovery. It may not be coincidental that us employment growth in bars and restaurants, at about 33% since the end of the 2007-2009 recession, has also crept to a halt.

“I think we’re in the last innings of the consumer cycle,” said Costerg. “Consumer spending may be strong for two or three quarters, but I fear there could be a cliff effect” if business spending and investment do not pick up.