Consumers: Grumpy, But Spending

At the tail end of another week dominated by the absurdities of politics – this week we were treated to yet another Republican jobs plan that appears to have no jobs in it – we hear that retail sales rose nicely in September despite the continuing pessimism and general grumpiness of American consumers.

I have said it many times, but it is worth repeating: these kinds of contradictory reports are typical of an economy adrift rather than moving in any particular direction.

The retail sales gain of 1.1% in September was a bit of a surprise. Most of us thought a number closer to 0.5% would be about right. The big difference came in a modest, but significant enough, rise in auto sales, which bounced back from a weak August. There is a possibility that we should average the two months out to get a better idea of the economy’s rate of travel, but even then there is definitely sufficient strength to prevent notions of renewed recession popping up in conversation. Sales excluding autos rose a more modest 0.6%, but that too was a bit stronger than expected.

Given that both the July and August figures were lifted from their original estimates, it seems that consumers spent at a fairly good clip through the summer, so the third quarter GDP figures could be stronger than the 2.0% I have been predicting. We should, of course, remain very cautious. The GDP consumption numbers do not tie directly with retail sales and so may be weaker, and the sales figures may end up being revised down. Having said that there is enough evidence for us to assume that poor consumption will not be the cause of an overall downturn any time soon. But nor will consumption drive us forward either: even though retail sales stand about 8.0% above where they were last year, demand is just too weak for us to think in terms of a steady or robust period of growth.

This is particularly true when we take into account the sour mood of consumers.

Today’s news that the University of Michigan measure of consumer sentiment dropped about 2 points to 57.5 in early October, caught many people by surprise: the general feeling was that it would stay around 59. At the risk of being repetitive, the causes of this sour mood are very obvious: wages are weak, unemployment is still high, general prospects are dim, real estate is mired in a deep rut, and our political gridlock is eroding any chance that policies will fix any of those problems. People just seem to be ticked off.

Sure, they’re still buying things, but they are being very careful about what they commit to. The energy and confidence is lacking to pick up the pace, and the feeling is that things will get worse rather than better.

This is hardly the stuff of vigorous growth. But it is the stuff of stagnation.

Lacking leadership, coherence, and ideas we appear destined to limp along for a while.

It need not be thus, but it is. Shame on us all for not being able to solve this mess.