The U.S. dollar moved higher this week as improving retail sales and disposable income growth, alongside a firming labor market boosted investor sentiment. PowerShares DB US Dollar Index Bullish (UUP) is up over 10% since July as the U.S. economy steadily improved.
Retail sales grew in November, kicking off the start to holiday spending, as increased disposable income and a firming job market created an incentive for consumers. On Thursday, the retail sales figure showed annual growth of 5.1%, up from the previous month's reading of a revised 4.5%. Retail sales stabilized in 2014, and now look to be pushing higher at year's end, as is seen in the chart below. Analysts even see the positive momentum in the retail figure carrying over into 2015.
"We could have a blowout period for consumer spending in December, which gives the economy momentum going into 2015. The oil glut is a boon. Employment is growing solidly. The economy is picking up speed," according to a report by Reuters.
Data provided by Trading Economics
A factor aiding increased consumer spending recently is the drastic fall in energy prices, magnifying already growing disposable income levels. The pace of disposable income has broadly increased in 2014 due to a strengthening labor market, and solid economic growth. Magnifying the strength in disposable income is the disinflation in food and energy costs, as is seen in the chart below. As consumers continue to feel the "wealth effect" of more money in their pockets due to less of an outlay in energy costs, consumer spending should maintain its uptrend.
Data provided by the Federal Reserve
Also contributing to income growth, as well as increased spending is the firming labor market, as is conveyed through this week's initial jobless claims figure. The claims figure came in at 294,000, below last week's figure of 297,000, as well as coming in below estimates for 295,000. Jobless claims have strongly receded from levels near 700,000 seen in 2009, to just below 300,000 in December.
Consumer spending continues to grow as disposable income strengthens, alongside a firming labor market. Although the U.S. economy still has more room for recovery in both consumer spending and its labor conditions, relative to the rest of the world, U.S. economic activity looks stellar. Expect the dollar to continue its trend higher as economic activity improves.
Data provided by Trading Economics
