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About a week and a half ago, the retail sales figures blew the market apart coming in with a full percentage point increase. Everyone tried their hardest to explain the huge rise, only to come to the conclusion that it will "definitely" get revised lower next month. Okay. But, now we've got personal income coming in, along with Real Personal Consumption.

Here's the latest charts on personal income and personal consumption:

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Taylor chart 1

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Taylor chart 2

As consumption goes, so goes the economy. Income has been on the rise for some time. But, consumption has been slow to follow. I've been a bit confounded by that fact. There's a negative savings rate here in the States. So, if the rate of growth in income moves higher, so would consumption. Just one of those things about the U.S.: we don't save a darn thing. So if the rate of our incomes increases, it's only a matter of time before consumption follows.

Finally, consumption has started to show solid signs of increases. This also helps to solidify the retail sales figures that we just saw. Further, if you look at the total increase in incomes, consumption will assuredly move higher going forward.

So, what does that mean for the economy? There's a fairly strong correlation between industrial production [IP] and Personal Consumptions Expenditures [PCE].

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Taylor chart 3

That makes perfect sense as industry starts to vamp up as consumers start to spend. From there, you can see a direct correlation between IP and GDP. Here's a visual:

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Taylor chart 4

The Wall Street Journal came out with a fairly decent outlook for the U.S. equity markets. The analogy was that of a San Diego weatherman, who may have the most boring job in the nation. He says the same darn thing every single day: "The weather's going to be nice. Back to you Bob." I can see that happening as well. The economy is set to move forward with a very nice pulse. The equity markets are very likely to move higher because of it. And, more importantly, the dollar has every reason to appreciate as investors move into our markets from around the world.

Source: Correlating Income, Consumption and the Economy