Ugh! Did you see that recent report on US retail sales for December? It was terrible! Apparently, sales at the retail level fell 0.3% instead of growing 0.4% like initially expected. The core version of the report, which excludes vehicle and gas sales, shared the same dismal tone and showed a 0.2% drop.
You might find it hard to believe but get this: Some analysts are saying that the fall was caused by BAD WEATHER! They said that the cold weather deterred would-be shoppers from going out and buying gifts for their loved ones for the holiday. I find this quite odd… Isn’t the weather cold every December?
In any case, I think I’m going to point my finger at something else: the weak labor market. Joblessness in the country currently stands at 10.0% and is expected to stay this way for an extended period. I don’t think I have to delve into the gloomy details of this, as I’ve repeated this countless times in my previous posts. But let me just say that I highly doubt the average Joe concerns himself with unpleasant weather when they are on the brink of losing their jobs! Besides, has Santa ever complained about cold weather? I think not.
But before we lose all hope for the US consumer sector, there is a tiny silver lining underneath the recent retail sales letdown. If you look beyond the December headline figure, you’d notice that retail sales numbers for the previous month were revised upwards from 1.3% to 1.8%. Likewise, core retail sales for the same month were revised higher from 1.2% to 1.9%. At the end of the day, consumer spending is still up by a hefty 5.4% from December 2008. Not bad, Uncle Sam!
Some say that these revisions in the November sales figures would be enough to cover for December’s surprise drop in retail sales, ensuring that consumer spending would stay positive for the fourth quarter of 2009. In fact, many speculate that the unexpected contraction in consumer spending wouldn’t be enough to drag down the projected 4% GDP growth for the fourth quarter.
Perhaps we’ll get a clue on the direction of consumer spending based on the consumer sentiment report that’s going to be released today. It is expected that the University of Michigan consumer survey will post a reading of 73.8, marking the highest level that the index has reached since the beginning of the recession. If consumers are indeed starting to feel better about the economy, perhaps they’ll actually bust out their wallets and do some shopping.
On the other hand, if the survey releases poor results like the recent NFP and retail sales reports, it could be yet another signal that US economy isn’t quite out of the woods just yet. And if the recent trend holds, this could lead to more dollar selling in the markets.
In the end, I believe it will be the average American that will have the final say on whether or not we will be seeing a double dip recession or not. Consumer spending, after all, accounts for more than two-thirds of the US economic activity.