Not You Too, Uncle Sam!

Judging from last Friday’s consumer data, it’s starting to look like Americans have reverted back to their shop-till-you-drop ways. Retail sales continued to grow for the seventh consecutive month last April, rising by 0.4%. Meanwhile, the core version of the report, which doesn’t include automobile purchases, rose by 0.5%.

Although these figures failed to hit initial targets, take note that March’s figures were upwardly revised to show increases of 1.2% and 2.1% for headline and core data respectively! Looks like people did their Easter shopping a lil earlier this year!

Meanwhile, the University of Michigan released the results of its monthly consumer sentiment surveys. The index printed a reading of 73.3, which was slightly less than consensus of 73.5. Still, it was an improvement from March’s score of 72.2, which indicates that consumers are becoming more optimistic over the economy.

With consumers pulling out their spanking new hundred dollar bills and becoming more confident, I can’t help but wonder: Would the consumer sector stay strong? Or would it crumble under pressure?

The rise in spending seems to be backed by a steady improvement in employment as non-farm payrolls posted positive readings for the past couple of months. Now that Americans aren’t so worried about losing their jobs anymore, why not splurge on that cool iPad or go on a shopping spree? There’s hardly anything holding consumers back now, except maybe the unexpected standstill in average earnings.

Part of me remains skeptical since I still think the US economy is far away from being healthy and ideal. Compared to other major economies like the UK and Japan, it isn’t exactly doing very well either!

In the next three years or so, the economy needs to generate approximately 13 million jobs to bring joblessness back down to pre-financial crisis levels. This means the economy must create around 400,000 jobs per month, and grow 5% yearly.

Furthermore, the rebound in house prices seem to be slowing down. Housing industry experts believe that the house price index for February will show a sharp 4.2% drop.

And with all this debt talk in Europe going around, it would be unfair NOT to take a look at the US finances, too, right? Last Wednesday, the US government revealed that it suffered an 82.69 billion dollar deficit in April, four times the deficit seen exactly a year ago.

The figure was quite a surprise to everyone because this was supposed to be the time wherein personal income taxes start coming in. If you were to add this to the already bulging US national debt, you’ll come up with a yummy 13 trillion dollar figure. While Greece boasts a 115% debt-to-GDP ratio, the US isn’t too far behind with a hefty 90% figure.

If the US is experiencing a plateau in home prices, a weak labor market and high levels of public debt, then why the heck is the US dollar rallying across the board? Well, one thing that the US dollar enjoys very much is its safe-haven status. The fear of a double-dip recession has triggered a wide-reaching case of risk aversion, causing investors to rally back to the safety of the US dollar.

When some traders become risk averse, it quickly catches on like a trending topic on Twitter. For now, as long as confidence remains down, expect to see the US dollar to reign supreme over the foreign exchange market. Despite this, I remain optimistic that the government will eventually steer the US economy in the right direction.