How Retail Sales Increase Maybe Bolsters Argument for a Stronger Economy
The 1.2% retail sales increase announced last week bolsters the argument that the economy has been strengthening. At least that's the interpretation put forth by some main stream economists. We particularly note this jewel of a comment by one Ward McCarthy, chief financial economist at Jefferies LLC in New York:
In any case, these numbers always have to be taken with a grain of salt. In this case: How much of the increase is due not to increased buying, but simply due to increased spending - that is, spending more because prices are higher? For example, the same Bloomberg article that trumpeted the sales increase notes:
As for the "stylish" sorts of items to which we referred above, that "discretionary" realm contains items that you really don't need. Typically such items therefore suffer most when people restrict their spending. On the other hand, the more luxurious segment of stylish goods - those purchased by wealthy folks - will sustain their sales, as the wealthy continue to pluck this here and that there, albeit it more likely on Madison rather than Fifth Avenue.
All in all, the mere increase in retail sales may or may not be the harbinger of a strengthening economy, at least not one which would cause us to break out the champagne and declare:
“The consumer took a month off and came back and spent in style,”Sounds rather grand doesn't it, "in style"? One pictures nattily dressed men and women promenading down Fifth Avenue, plucking this here and that there. What else could he have meant by "spent in style? Certainly not gas for our cars.
In any case, these numbers always have to be taken with a grain of salt. In this case: How much of the increase is due not to increased buying, but simply due to increased spending - that is, spending more because prices are higher? For example, the same Bloomberg article that trumpeted the sales increase notes:
The average cost of a gallon of regular gasoline was $2.75 on June 9, compared to $3.64 percent a year ago. It fell as low as $2.03 in January.So here we see an example of of sales increase based on price increase of the item sold. Gas is one of those items that people typically need to purchase, so cutting down on how much used because the price rises has limits. Same with many food staple items. People will spend on necessities because they're, well, necessary. It's just common sense.
The recent rise in fuel costs propelled a 3.7 percent jump in receipts at service stations in May, the biggest increase since February 2013,
As for the "stylish" sorts of items to which we referred above, that "discretionary" realm contains items that you really don't need. Typically such items therefore suffer most when people restrict their spending. On the other hand, the more luxurious segment of stylish goods - those purchased by wealthy folks - will sustain their sales, as the wealthy continue to pluck this here and that there, albeit it more likely on Madison rather than Fifth Avenue.
All in all, the mere increase in retail sales may or may not be the harbinger of a strengthening economy, at least not one which would cause us to break out the champagne and declare:
Happy days are hear again!
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