Why US Retail Sales Are Up Even as Consumers Deleverage
We were curious about what would happen yesterday. The market sold off on Friday. The question was: are investors rejecting Ben Bernanke and his printing press money?
Another big drop in stocks yesterday would have confirmed the rejection hypothesis. A big increase in stock prices would have suggested that investors were on board with QE.
So what happened?
Nothing. The Dow was either up 9 or down 9, we can’t remember which. Gold was up $3. Nothing significant, in other words, in either direction.
So, Mr. Market is going to keep us wondering…guessing…cogitating…
…what’s going on?
And here’s something that has us wondering about. Retail sales are up. Here’s the Bloomberg report:
Sales at US retailers climbed in October by the most in seven months, brightening the outlook for holiday shopping even as unemployment holds near 10 percent.
Purchases rose 1.2 percent, exceeding the highest forecast among economists surveyed by Bloomberg News, according to data from the Commerce Department issued today in Washington. Another report showed manufacturing in the New York region unexpectedly shrank in November as orders dropped.
“We expect the holiday shopping season to really ramp up in November,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who forecast a 1.1 percent gain in sales. “The breadth of discounting” and steady income gains are “providing some support,” he said.
The improvement in spending comes as other parts of the economy show signs of cooling.
Wait a minute. Isn’t the consumer de-leveraging? Isn’t he paying down debt and defaulting on his mortgage? How can he be increasing spending?
Well, maybe with all this talk of quantitative easing has unsettled him. Maybe he thinks the world as we have known it is ending…maybe he’s decided to enjoy it. Or maybe the consumer believes that the Fed will really succeed in stirring up the economy. So, maybe he’s feeling more confident. Or maybe he thinks the Fed will destroy the value of the dollar, so he’s getting ready for inflation – spending his money as fast as possible.
Or, most likely…this is just a little, insignificant blip of information…meaningless noise, in other words.
Households are not likely to really increase spending. They don’t have more income. Their houses are worth only about 70% of what they were three years ago, and still going down. Their credit ratings are impaired. Lenders are more cautious. And so are consumers themselves.
So, we’re not going to take this news very seriously. We just didn’t want you to think that we were hiding developments that don’t seem to fit our Great Correction hypothesis. We’re not hiding them; we’re just ignoring them.