Let’s get started with a discussion on retail sales. As we know, GDP growth came in a bit stronger than expected for the third quarter, largely because of stronger consumer spending growth.
That growth from consumer spending is particularly important since it was not met with increased employment. Unemployment is a strong drag on spending. That’s obvious. And since unemployment is unlikely to significantly improve any time soon, depressed spending can be considered a normal condition for the foreseeable future. But the increase in spending, despite a fall in employment, is hope the recovery could last.
Also, spending is a measure of people’s feelings about the economy. Spending is essentially a sentiment indicator. No matter what consumers might say in a survey, they speak with their wallets. People spend when they are comfortable where they are financially, and have an expectation that they will be even better off in the future.
So, with that in mind, let’s take a look at how sales were this weekend…
Black Friday sales were not great, frankly. A 0.3% rise in sales is not much of a gain, especially when you consider the discounting that was offered.
But fortunately, shoppers picked up the slack the rest of the weekend. Per person sales were up 6.4% over last year. The total haul for the weekend was around $45 billion. Less than 25% of that came on Friday. As I’m fond of saying, never underestimate the American consumer.
I saw the following quote from a Black Friday shopper in a Bloomberg article:
“We’re here to check things out today," said Debbie Schwig, as she shopped at Apple Inc.’s (AAPL) Fifth Avenue store in Manhattan. "We’ll wait until vendors get more desperate.”
The quote stood out because this attitude is the very essence of deflation. When too little money is chasing too many goods, it’s natural to feel that sellers will have to offer more discounts to attract that money. Of course, this situation will change at some point. Eventually, sellers will gain pricing power and it will no longer be a buyer’s market. That seems to have happened already in the auto market. I will be interested to see when the tide turns for the housing market.
Right now, I’m sure potential homebuyers are confident that home prices are in no danger of rising. That’s probably a safe bet for the winter. But what will happen when Spring rolls around?
If only sales in the U.S. was all we had to worry about. News that Ireland is getting a massive $113 billion bailout is hammering the euro and driving the dollar higher. This is an interesting situation because it clearly shows that the dollar can rally in the face of QE2. And interestingly, oil is rallying against the stronger dollar, and gold is off only slightly this morning.
The potential for bailouts with Spain and Portugal is still on the table. It’s reasonable to expect this to continue to weigh on the euro, and support the dollar.