Sideways Consumers
A brief note to comment on today’s retail sales numbers: they were disappointing, especially after the hoopla associated with the traditional burst of spending after Thanksgiving. The government’s report has retail sales growing only 0.2% in November, down from the October rate of 0.6%, and September’s 1.3%. This flattening out of spending surprised most analysts and was only positive because sales of autos and electronics were strong. Many other major categories of spending saw declines: gasoline, dining out, food, many other types of services, and home-improvement all fell.
So the message is very mixed. Electronics, for instance, seem to have benefitted from heavy discounting. This makes it difficult to predict whether November’s increase will carry over once those discounts are ended. Furthermore, a great number of the impulse purchases that typically comprise a large share of year end and holiday spending are apparently less attractive – consumers are being more judicious and are preserving cash as much as possible. Anecdotally the stores are full. Factually that activity is not translating into heavy purchasing.
The upshot of this is that we have to reconsider the fourth quarter GDP outlook.
My own view is, and has been for a while, that GDP will be somewhere between 2.5% and 3.0% during the quarter. Since consumption remains about two thirds of US GDP, these retail sales numbers suggest that we should think more in terms of the lower end of that range than the higher end, although things like exports and inventory accumulate could alter this.
Having said that we must not forget that sales are up substantially over the past twelve months – 6.7% to be precise. Also they have accelerated in recent months, despite November’s lull. We are clearly stronger than last year, but nowhere near strong enough.
So we have not hit a wall, but a bump. The economy is growing, just not strongly enough to generate much new employment, and we enter the new year firmly in stagnation mode. The ongoing and unresolved crisis in Europe remains a huge threat that could undo all the work done on our fragile recovery. Our policy options are narrowing every day as our never ending election cycle kicks into high gear, so there will be much posturing and little action until this time next year – if then.
How do we sum this up?
More of the same? Sideways? Stagnation?
Does it matter?
How about: what you see is what you get? For all you computer geeks out there, this is a WYSIWG economy. The problem being that what we see isn’t very encouraging, and I must admit it is discouraging to have to keep repeating the same message: without action to boost demand this WYSIWG description will remain far too apt.
