Saturday, May 14, 2011

Where is the economy headed? Guess!

This week we had Retail Sales reported as I mentioned in the previous post, but I didn't spend much time discussing it and looking at the recent trend. Before I get into the data, I thought I would comment on why Retail Sales are an important metric to determine where the economy is headed.

The reason is because the Consumer represents 70% of our economy and when they are spending the economy is growing and when they slow the pace of spending, the economy can grind to a halt. It has been said many, many times, the economy has been sustaining "moderate" growth. Several posts ago I said when you see the word "moderate", substitute "slow" growth. So looking at Retail Sales trends give us a sense of the Consumer and the economy. Let's look at the recent trend.

Retail Sales for February was 1.3%
Retail Sales for March was 0.9%
Retail Sales for April (reported yesterday) was 0.5%

Do you spot a trend?

One other piece of data, which I like to look at is Consumer Debt and specifically Revolving Credit from Credit cards. Here is the data starting in 2010.
Q1 2010 840.1
Q2 2010 826.2
Q3 2010 806.9
Q4 2010 800.7
Q1 2010 796.1

Do you spot a trend?

The Consumer is trying to pay down debt it seems and is spending less on Retail Sales. And while prices of Gasoline have increased significantly, the Consumer continues to feel the pain.

So when Fed. Chairman Bernanke says we are in a "moderate recovery", you may be hearing soon that the economy has "stalled", which is another word for going nowhere!

Three days this past week the Dow was up and only 2 days down, but the Dow finished the week down for the entire week.

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Anonymous Anonymous said...

wouldn't you consider it good that the consumer is at least paying down their debt? The sooner they pay their debt down the sooner they can go and jump back into debt again.

It is obvious and seems that the market is craving for a sell-off to occur. This sell-off has actually been delayed from the feds buying spree which has been going on for many quarters. It now seems that this sell-off is finally going to happen(unless another distraction?) Do you actually see a big case of doom and gloom on the horizon? or maybe a scenario where we are able to slowly climb back with minimal growth going forward?

12:54 PM  
Blogger Charles Amico said...

Yes, I do consider it a very good thing that Consumers are paying off their debt and not incurring new debt.

I agree on the sell-off but the Fed has been propping up the market for quite a while now. I thought the sell-off would have occurred a full year ago. So you see I'm not that good at predicting when it will happen. But it will happen, just like earthquakes in California. Thanks for your comment.

6:57 PM  

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