Economic stabilization affirmed

Good morning everyone!

Today saw the publishing of the March retail sales data.  The Commerce Department reported this morning that consumers increased their spending on retail goods and services by 1.6%.  This is the largest gain since the Christmas season and the figure exceeded economist estimates for an increaes of 1.3% up.

Separately, U.S. consumer prices were up 0.1% in March.

Analysis: As I have said since the “auto sales” figures were published last month, the U.S. consumer seems to finally be emerging from its fog.  See, for example my post last week entitled, “quiet before the storm?”  Not surprisingly a big portion of the rise in retail sales was driven by automobile purchases.  However, other retailers, like clothiers, were also up.  There are any number of reasons that U.S. consumers are feeling better about the world.  First, is that the job market has stabilized, albeit it has not really improved that much.  Second, it is spring time and folks start feeling better about themselves and the world in the spring.  Third, the danged healthcare debate is finally off of the airwaves.  Fourth, consumers have adjusted to the changes brought on by the recession.  As we all know, people don’t like change.  In the face of big economic changes folks usually hunker down.

That consumer prices were up only 0.1% means that inflation remains tepid.  However, I would like to point out that the inflation gauges in the U.S. are flawed because they do not include asset price levels.  All throughout the dot.com and real-estate bubbles inflation remained tame.  Meanwhile, asset prices went up and up and up and then they crashed.  Hopefully the Federal Reserve starts to reign in the U.S. money supply by raising interest rates, lest we push the problems of this most recent asset bubble bursting into the future yet again as we did in the dot.com era.

Importance grade: 9; that the U.S. consumer is buying again is critically important to the health of the economy going forward.  Consumer spending is 65-70% of Gross Domestic Product.  Thus, consumer well-being and spending is necessary for economic stability, health, and growth.

[Note: it is very interesting to me that businesses did not start hiring to help end this recession.  Instead, motivated to maintain solvency and profits, they seem instead to have waited for the U.S. consumer to start spending.  This is instructive for future recession evaluation.  What it means is that storms must pass, consumer mourning must occur, and then consumer’s must forget what has just happened for a recession to end.  In other words, in the next recession it might behoove a president to ease the pain of consumers, rather than focus on businesses, as a form of helping economic stimulation.]

Jason