How about some good economic news

by Laura Ehrenberg-Chesler on August 22, 2019

in Earnings,Economic Indicators,Employment,retail sales

A number of retail stores have reported earnings for the 2nd quarter of 2019, and they are good. This morning, Ed Yardeni explains what this means for the economy.

Consumer spending, looked at from many different angles, still looks healthy. Consumers are spending at Walmart and at Target. They’re spending at restaurants and hotels. And they may have room to spend more, as the saving rate was relatively high at 8.1% during June and personal savings rose to a record $1.3 trillion over the past 12 months through June. Over that same period, real disposable income is up solidly, with a gain of 3.3%. Here’s a look at some more consumer-spending metrics and this week’s earnings reports from retailers confirming that consumer wallets are open—just not at department stores:

(1) Broad indicators are positive. Nominal US retail sales rose 0.7% m/m in July. Adjusted for inflation, they rose 5.4% on a three-month, seasonally adjusted moving average. Growth rates differ dramatically by category. Shoppers are spending more online (14.7% y/y), at health & personal care
stores (4.3), at warehouse clubs & super stores (3.8), on food either at stores or in restaurants (3.6), and at general merchandise stores (2.1). Consumers are shopping less at department stores (-4.7) and electronics & appliances stores (-3.5).

Online sales rose to a record $694 billion (saar) during June, well exceeding department stores sales ($138 billion) and sales at warehouse clubs and superstores ($496 billion). Online shopping now accounts for a record 35% of GAFO (general merchandise, apparel and accessories, furniture, and other sales), which includes retailers that specialize in department-store types of merchandise such as furniture & home furnishings, electronics & appliances, clothing & accessories, sporting goods, hobby, book, and music, general merchandise, office supply, stationery, and gift stores.

Bank of America often has a good, early read on consumer spending because it boasts 66 million consumer and small business clients. The bank’s CEO Brian Moynihan
told CNBC yesterday that its consumer base spent $2 trillion ytd, a 5.9% increase y/y. “The U.S. consumer continues to spend and that will keep the U.S. economy in good shape,” he said.

(2) Plenty of dry powder. Consumers are benefiting from more jobs and higher wages. The unemployment rate was 3.7% in July, a tick above the 3.6% rate during April and May—which was the lowest rate since December 1969. Real average hourly earnings of production and nonsupervisory workers continued to climb in June, up 1.9% y/y, marking its 80th month of gains.

While consumers are spending some of their newfound dough, they’re saving lots too. The US personal saving rate is in an uptrend, as the absolute amount saved has climbed to new highs, as noted above. Typically, saving rates fall during economic booms as consumers get more optimistic and spend excessively. Saving rates often rise during recessions, when consumers turn more cautious. The saving-rate jump may mean consumers will be able to keep spending more, longer.”

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