U.S. Consumers: Forward March!

Yesterday, the U.S. retail sales figures came in significantly better than expected, suggesting that the U.S. economy is starting to gain momentum.

Retail sales reportedly grew 0.1%, opposite the 0.3% decline economists had initially expected. Meanwhile, the core version of the report that excludes automobile sales came in just as projected at -0.1%. The results were welcome improvements from the previous month’s 0.5% and 0.4% declines in the headline and core reports, respectively.

These positive retail sales couldn’t have come at a better time. The payroll tax, which is used to fund Social Security and Medicare, has recently been increased to 6.2% for people whose wages are above $113,700 per year. It was at this level two years ago, when it was slashed to 4.2% in an effort to resuscitate the weak U.S. economy.

Many economists thought that this would cut heavily into consumer spending as they predicted that consumers would instead choose to save more. However, it seems that just because taxes have been raised and their take-home pay is marginally lower, it doesn’t necessarily mean that households would reduce spending.

Digging a little deeper, we can actually see that there are quite a few positive signs that the economy is picking up and that consumers can actually afford to open up their wallets a little bit.

For one, oil prices have been on a steady decline since the beginning of April. Average national prices dropped to $3.55 / gallon, after they fell by about 13 cents (3.5%) over the course of the month. To put this into perspective, this marked the largest one-month decline in over a DECADE, and actually translates to about an additional $13 billion of potential spending for average Joes like you and I. Boo yea!

Second, the labor market made a major comeback this past April, as the non-farm payroll employment report surprised to the upside. Moreover, weekly jobless claims continue to fall and are now at around 330,000, way off the 400,000 figures we have grown accustomed to over the past couple of years. As for weekly earnings, they’ve actually climbed to their highest level since October 2010 this past March.

Tying these all together, it’s no surprise that consumers are growing more optimistic about the economy, as can be seen in the last Conference Board Consumer Confidence figure, which surprisingly jumped up to 68.1, its highest level since November 2012.

With consumer confidence on the rise and with the Fed still sticking to its ultra-accommodative monetary policies, the U.S. economy may be just one step away from a seriously bullish run. Watch out forex peeps, this may just be what the Greenback needs to be victorious during the second half of 2013!