Consumers Get a Little Holiday Cheer
Consumer spending has been accelerating for more than a year, as we now enter the holiday shopping season.
This data-heavy week played out largely as I hoped, with consumers continuing to accelerate spending into the holiday season. Unfortunately, housing remains in the doldrums and manufacturing looks like it's slumping again. As I have been talking about for some time, real GDP growth was revised sharply upward to 2.5% from 2.0% for the September quarter, comfortably ahead of June's more modest 1.7% growth.
Outside geopolitical events, including the military situation in North Korea, fears of new debt problems in Europe, and further tightening measures in China, continue to rightly weigh on the markets despite this week's positive sets of economic data. I will say, however, that this round of the European debt crisis seems to be scaring consumers much less than it did last spring. A modestly slowing Europe is not a disaster for the United States economy (U.S. exports to Europe in total are in the very low single digit percentages of U.S. GDP, and U.S.-based banks' exposure to Europe is modest). However, a shell-shocked U.S. consumer would be big problem.
Holiday Sales Growth of 3% Seems to Be a Real Possibility
The data and statistics I see are consistent with holiday same-store sales in the 3%-4% range (compared with a range of 1%-2% for last year, depending on the survey). Driving the improvement are higher consumer incomes, lower initial unemployment claims, improved employment, and a stock market that is about 12% higher than a year ago. Revised data this week showed that U.S. consumption levels have now exceeded December 2008's high and then some. Based on improving auto sales data, consumer confidence in the real economy seems to be improving. After bottoming at 9.2 million units in February, 2009 car sales moved up to just 11.1 million units in December 2009. After bouncing around and making no net progress in the first half of 2010, sales have been up three of the last four months, with October sales now at 12.1 million units on a seasonally adjusted annualized rate. These are big-ticket, long-life assets that seem to be indicating renewed consumer confidence, despite lackluster results out of the major confidence surveys.