Friday, February 12, 2016

Consumers may lead the way

Economics in a nutshell: The winter slumber is over and with confidence rising, the consumer could lead the way, if only wage gains improve.

Consumers may lead the way

Can consumers hold up their part of the economy with incomes going nowhere? (AP Photo/David Duprey)
Can consumers hold up their part of the economy with incomes going nowhere? (AP Photo/David Duprey)

INDICATOR: March Retail Sales

KEY DATA: Sales: +1.1%; Excluding Vehicles: +0.7%

IN A NUTSHELL: "The winter slumber is over and with confidence rising, the consumer could lead the way, if only wage gains improve."

WHAT IT MEANS: The harsh winter had an impact but the first buds of spring seem to be convincing people that it is time to hit the stores again. Retail sales, which had cratered in January, picked up steam in February and soared in March. The gain was the largest in eighteen months. Part of that came from the surge in vehicle sales as people didn't have to brave the cold or snow to visit the showrooms. But it was not just automotive dealerships that did well. The gains were pretty much across the board, with apparel, furniture, building supplies and Internet companies showing big gains. Families also ate out a lot as they shopped for bargains. The only declines were in gasoline, which was probably driven by some price declines and of more concern, appliances and electronics. People may be buying vehicles again but that seems to be just about the only place where they are putting their money when it comes to big-ticket items.

MARKETS AND FED POLICY IMPLICATIONS: The consumer is on the move and the warmer weather is improving attitudes and sales. The terribly weak January demand will probably limit first quarter consumption but it is not going to be nearly as bad as was feared when the data for the first month of the year were released. That holds out hope that GDP growth might not be that much lower than the 2.6% rise posted in the fourth quarter of 2013. After January, there were estimates below 1%. I think somewhere in the 2% to 2.5% range is possible and with the horrible winter having wreaked havoc on businesses, that would be quite respectable. Investors should like this report as it provides some basis for assuming earnings will improve as we go through the year. With the Fed bailing out of the equity bailout business, it is up to fundamentals to drive equity prices. As for the Fed, a report like this only adds to the conviction that tapering will continue unabated and may allow for a sooner than expected ending of asset purchases. I have September in my forecast.

Joel L. Naroff is the co-author, with veteran journalist Ron Scherer, of "Big Picture Economics: How to Navigate the New Global Economy". Release date is April 21, 2014.

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About this blog
Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm in Bucks County. He advises companies across the country on the risks and opportunities that economic developments may have on the organization’s operating environment. An accomplished public speaker, Joel’s humor and unique ability to make economics understandable have brought him a wide following. Reach Joel L. at .

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