Hesitation is that thing that mother nature gave us to protect us from ourselves. It saves us from the potential for pain, which also prevents our growth and inhibits our burgeoning character. Wow, that was deep for a Friday morning! Nothing gets me waxing philosophical like the contemplation of spending money.
The monthly reading of Consumer Sentiment was released today. This survey measures consumers’ attitudes and expectations of both present and future economic conditions. In a lab, Consumer Sentiment should predict Consumer Spending, including Retail Sales. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend their hard-earned money, and vice-versa. Since 2/3 of the economy is in the palms of consumers’ hands, it’s kind of a big deal. And everybody knows that the outlook for our economic growth in the U.S. is still…well, let’s call it “hesitant”.
Today, Retail Sales are up 0.5% over last month, which is always nice to see a positive number there. The dangerous prospect for this quivering little plant in our collective hands is in the outlook for the future of consumer spending. The Consumer Sentiment released this morning shows that our propensity to spend money this month actually dropped almost 4% since the last reading four weeks ago. Consumer Spending is just one piece of economic data, but it is considered to be one of the foremost important, as well as one of the best indicative precursors of that which is to come.
Retail Sales drop again as more Americans are saving more of their paychecks instead of buying stuff. If you take car sales out of the equation, Retail Sales slipped -0.3% last month. Despite less product being sold, buoyancy to corporate profits should be maintained by a decrease to the cost of the production of goods. The Producer Price Index dropped -0.2%. A temporary slip; not a major fall.
Sometimes charts are boring, and sometimes they are telling–which makes them interesting. This chart maps the trend in Retail Sales over the last 22 years, overlaid with periods when our U.S. economy experienced periods of recession. What strikes me in this picture is that over the last two decades, the two previous recessionary eras coincided with a stagnation in consumer spending–when Retail Sales failed to grow at a two percent annual rate. This year, we have dipped down below that number, and we continue to hang down under that 2% mark. Retail Sales are important because that’s where the rubber meets the road, so to speak. It’s not a survey that can be impacted by a caller’s bad mood like some other prognosticators. This is showing that we aren’t spending money, and a lack of spending leads to a lack of productivity. The “velocity of money” comes to a halt. So go buy some stuff and then give yourself a high-five for being patriotic. Better yet, go buy a house and get a big loan and then I’ll go buy some stuff. 🙂
Each month a survey of 500 homes across the country is conducted by some low paid telephone solicitors with thick skin. That extracted data is then reviewed by some of the brightest minds in Michigan and a numerical value is placed on the collective feedback of of Mr. and Mrs. America regarding how they are planning to spend any money that they may or may not have. That number is published monthly as our Consumer Sentiment. This month, Consumer Sentiment is up more than an aggregate body of wagering economists anticipated (for those of you keeping track at home, November’s number is 93.1). In short, they concluded that we feel good about buying stuff.
That’s great news for monetary growth because two-thirds of our U.S. economy is accounted for by all of that stuff that we consumers purchase. The disconnect this month is that consumer spending (AKA: Retail Sales) didn’t reflect the optimistic outlook that the brains in Michigan calculated. That Retail Sales report is published by the Commerce Department (as in The United States Department of Commerce, not the commerce department of the local Cal-Ranch store). Consumer spending is less than half of what it should be during a normal economy, chugging along at a 2-3% annual growth rate. Where the majority of economic activity in our country happens when you and I whip out the debit card, our (collective) failing to spend money is adversely impacting the economy as a whole.
That is a long explanation for me to tell you that as I see it, we are not putting our money where our mouth is.
Retail Sales continue to wane, though my own household is certainly not to be blamed for any economic slowdown. And we are ramping up our efforts as if the upcoming August number is resting squarely on our shoulders for one reason: back to school. Since when did a kid need more than one new pair of pants and three shirts to get him through the first grade anyway?
On the other side of the globe, China is seeking to sooth its citizens and worldwide investors alike by affirming that there is no further reason that the Yuan should depreciate.
After starting lower, stocks have picked up steam and are now positive on the day–the reverse is true for bonds.
Retail Sales dropped 0.9% in December, or down -1.0% if you strip out automobiles. The consensus among brainiacs who forecast this sort of thing was that the numbers would remain unchanged.
Import Prices also fell -2.5% and Export Prices were down -1.2%, but these were roughly inline with the forecasts given the recent reduction in fuel costs. If tomorrow’s wires broadcast that the Consumer Price Index has also declined, we may start hearing talk of “that-which-must-not-be-named”: deflation. Then you’ll really hear the angry economist mob cry for the Fed to raise interest rates sooner rather than later.
For now, rates are battling multi-year lows
This chart from Freddie Mac shows the history of interest rates over my lifetime and should be an encouragement to just about anyone to get a mortgage.
FHA just announced that they will not extend the “anti-flipping” law past the end of this year. What that means is that FHA will no longer finance a property if the seller has not held title for longer than 90 days–unless of course the owner is them (HUD), Fannie, or Freddie, and certain non-profits.
On the economic reporting side, we have pretty good news out today across the board:
- Import Prices decreased 1.5% while Export Prices only declined by 1.0%
- 3,000 fewer people filed for unemployment last week than the week prior
- Retail Sales bumps up 0.7%, more than double last month’s gain
All of this is helping stocks regain yesterday’s losses, causing bonds to give back yesterday’s gains.
Foreclosure filings dropped by 10% in February, according to RealtyTrac, and are down 27% from this time last year.
Retail Sales rose 0.3%, marginally (as slim as you can get) above the 0.2% expected increase. Retail Sales is a massive contributor to economic growth because it make up about 1/3 of consumer spending in this country.
Weekly Jobless Claims fell by 9,000 to 315,000 new individuals filing for their first unemployment check last week.