Thursday, July 15, 2010

What are American's Buying?

The Commerce Department reported today that retail sales, spending by consumers, dropped 0.5% in June. On the surface, this might appear to be bad news. As with many things in the economy, it depends on how you count the numbers. If you exclude autos (down 2.3%) and gasoline (where the price dropped, creating less spending on the same volume of sales) then retail sales grew by 0.1%. This is not the growth rate we would like to see, but it is growth. So where are Americans spending? Department store sales went up 1.1%, appliance sales up 1.3% and specialty store sales up 0.6%. Now add to this more upbeat view the International Council of Shopping Centers' Index (this is comprised of the largest retailers) which showed a 3% gain in sales for the month, compared to the same month a year ago, and you might not be quite as concerned as the initial report would indicate. The Federal Reserve along with the IMF have indicated that they expect the growth in the second half of the year to be slower than the first half (3% vs. 3.5%). Instead of using percentages, let's see what happens using real money. If you had sales last year of $100 monthly, then your sales in the first half of the year averaged 101.75 followed by an average of $103.53, would you say this is progress? It appears to me that the economy is growing, albeit slower than we would like. In order to get faster growth, the federal government could be clearer about what they are doing so that small businesses and consumers feel more confident. This does not mean spending lots of money, but being clearer on tax, estate and business policies, all of which are unclear at this time. If small businesses understood the "deal" they might begin hiring, which in turn would lead to fewer unemployed, which would lead to consumer confidence. Making banking credit available to small businesses so they don't have to use their credit cards, at high interest rates, to fund their cash flow needs would also be helpful. Ed Mallon