Good News: Retail Sales

You all know my mantra about one month of data not being a trend. Well what about two months? This morning’s release of the November retail sales data brings us good news: they rose by 1.3%. This follows October’s revised increase of 1.1%. So two months in a row? Is this a trend?

It’s beginning to look that way.

Even if we take out volatile stuff like auto sales the increase remains, albeit much smaller at 0.64%. Plus, with the exception of clothing, sales seem to be picking up right across the board. Keep this up and we will can look forward to a much brighter 2010 than we had previously thought.

Backing this up is the fact that consumer sentiment, as measured in the monthly University of Michigan survey, also jumped up from 67.4 to 73.4 in recent weeks. Clearly at some level people are beginning to emerge from their bunkers and get back on with life.

This is all going on in the context of continued consumer balance sheet retrenchment: consumer debt has fallen five straight months and is now down to 124% of disposable income. The third quarter reduction came in at an annual rate of 2.6%, a record, and clearly signifies the determination of households to get their books in order. This augurs well for the economy in 2010, because the sooner consumers can re-establish their fiscal well being the sooner they can begin to consume at levels necessary to fuel expansion. Household net worth is well off its peak set back in 2007, but the $2.67 trillion gain in the third quarter substantially reduced the loss since that peak – we have about $12 trillion left to go before we get back to the top. Obviously most of the drop in net worth is a result of the fall in home prices, but the recent recovery in the stock market and the very slight pick up in real estate has reversed the decline.

So today’s news can only be interpreted as good.

The only remaining issue, and it’s a big one, is unemployment. If we can break the back of long term unemployment then we can be so much more confident about the next few years.

Assuming we fix the banking system, but that is another matter.