Monday, December 15, 2014

Retail Sales Portend +4 Percent GDP in 2015

Popular Economics Weekly

We have said that the prospect of higher interest rates next year may spur some extraordinary growth over the next few quarters, and just out holiday retail sales seem to be fulfilling that prophecy.  Consumer spending is returning to pre-recession levels, and this is without the boost from housing refinance that drove the housing bubble.

Retail sales are soaring even with lower gasoline prices (since retail prices not adjusted for inflation), up 5.1 percent YoY. This put sales back to pre-recession levels. Sales in November posted a 0.7 percent boost after rebounding 0.5 percent in October. Autos in particular jumped a huge 1.7 percent after gaining 0.8 percent in October. And retail sales ex-plunging gasoline prices increased by 6.0 percent on a YoY basis.


Graph: Calculated Risk

Couple that with the highest U. of Michigan consumer sentiment since before the Great Recession, and we can see why consumers are spending more. It can’t be only falling gasoline prices creating more optimism. Payroll jobs are now increasing some 300,000 per month, which heartens householders’ future financial prospects.


Graph: Calculated Risk

Sentiment surged to 93.8 for the mid-month December reading vs an already strong 88.8 in final November and 89.4 in mid-month November. This is the strongest reading since January 2007. The current conditions component is up 3.0 points from final November to 105.7 in a gain that signals month-to-month strength in consumer activity this month. The expectations component, though lagging at 86.1, is up a very sharp 6.2 points to signal rising confidence in the outlook for income and jobs, as we said.


Graph: Econoday

The prospects for faster growth over the next 2 quarters at least may also have to be due to the possibility of higher interest rates next year, as we have been saying. But we still have severe price-cutting in many retail areas, and wholesale prices have been flat for several months.

And the Fed is worried about falling prices at both the wholesale and retail levels, rather than inflation at the moment, so don’t look for Janet Yellen’s Fed to begin to raise their short term rates, until prices have firmed and begin to climb again.

Harlan Green © 2014

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