Who's Buying?

For all the not-so-good economic news that is streaming out of most developed, and some developing economies, the news out of the US is interestingly upbeat. The same economy that just lead the world into and out of a Global Financial Crisis, is now the measure of growth amoung its peers. Inflation is below the Fed’s long-term target, and the unemployment rate is within range of what is considered full employment. In addition, the Federal government can borrow for long periods at relatively low rates, and stock market indexes are at record highs. But looking closer, there appears to be several details of this rosey picture that do not align with the overall sentiment.  

 

Retail Sales is an interesting starting  point. Since 2011, the year-over rate of growth in Retail Sales [in both the broad and adjusted sence] has been slowing. This trend represents a period of restraint on the part of the US consumer, typically seen leading up to a recession as illustrated by U.S. Census Bureau data. The outcome of this slowdown in retail sales growth may not necessarily be an outright recession because most measures of consumer sentiment are at levels not seen since the run-up to the 2008 – 2009 recession. What this slowdown, in retail sales, may be signaling is an overshoot from the momentum of the recovery to a level above the a new [lower] equilibrium, and its inevitable correction. All the same, a lower equilibrium level for retail sales growth would ultimately mean  subdued demand behind consumer spending. However, this does not lineup with the strong growth picture being painted by the labor market and other measures of economic progress.