The Rise In Retail Is No Fluke
The stock markets rallied nicely on Monday in response to a solid retail sales number. The Census Bureau reported (PDF) that in September, sales rose 1.1 percent from August, to a record $412.9 billion. In addition, the August figure, originally reported as a gain of .9 percent from July, was revised to a 1.1 percent gain.
Yes, higher gas prices accounted for a healthy chunk of the sales increase in September—about one quarter. But the numbers bear witness to a larger trend. In the summer and in the fall, Americans began to do what they do best: shop. For the three month period between July and September 2012, sales were up 4.8 percent from the comparable period in 2011.
Analysts were surprised by the results. But the time has long since passed when we should be surprised by positive signs emanating from the American consumer. Sure, there is great uncertainty in the world—in Europe, in Asia, in the markets, and in the U.S. But the Greek bailout and the China slowdown affect business behavior far more than they influence consumer behavior. Consumer spending tends to be driven by three pretty significant forces. Each was trending down for much of 2009 and 2010. Each is now trending up. Check out the chart of U.S. retail sales below.
First, and above all, there’s the job market. Most Americans shop with their earnings. Even with wages relatively stagnant, when more people work, it tends to translate into more consumer spending. In September 2012, there were 1.8 million more Americans with payroll jobs than there were in September 2011; and 4.2 million more than there were in February 2010.
Second, there’s consumer confidence. The labor market isn’t good by any stretch of the imagination. But consumer sentiment and psychology plays a role in spending decisions. If people are feeling better about their current situation and future prospects, they’ll be more likely to spend a chunk of their paycheck—and more willing to take on a little debt in order to go to the mall. And consumer confidence is definitely on the rise. The Conference Board’s most recent reading of consumer confidence shows it spiked in September and stands at its highest level since February 2012. Last Friday, the University of Michigan’s measure of consumer sentiment came in at a five-year high.
Consumer confidence rises and falls with the job market, which is on the upswing. But it also rises and falls with the value of assets held by the American consumer. A booming stock market tends to make the minority of Americans who own stocks feel wealthier, and hence more confident about spending. And a rising housing market tends to make the majority of Americans who own homes feel wealthier, and hence more confident about spending. (Check out this article by my colleague Matthew Zeitlin to understand precisely how that works.) Data from Case-Shiller suggests that for the first time in years, home prices began rising in the U.S. this summer on a year-over-year basis.
One by one, over the past two years, the gears that make the mighty consumer engine go have been engaged. And the data points to an ironic twist in the trajectory of the U.S. economy. Businesses, which thrived and boomed in the early years of this subpar economy, are now increasingly taking a backseat to increasingly upbeat consumers.