Should American Consumers Really Feel More Confident?
Consumer confidence tells a far more optimistic story about the United States economy than the weekly readings of retail sales data. The Conference Board’s sentiment index rose to its highest reading since January 2008 this month. “Consumers spend based on their expectations and not based on their current levels of income, and consumer expectations were at a very healthy level this month,” Guy LeBas, the managing director of fixed income strategy for Janney Montgomery Scott, told Bloomberg. In March, more Americans were optimistic that employment opportunities will increase as the United States economic growth gains momentum. That sentiment means consumer spending gains are much more likely. Of course, weekly data collected by retail industry trade groups is limited in scope, but it does to some degree temper the picture painted by the Conference Board’s data.
Still, early in March — when the United States Department of Commerce announced retail sales had finally exited negative territory — economists were handed data that pointed an improving economy.
Job growth is accelerating while factory output and consumer spending are strengthening once again after posting concerning drops early in the year. “The consumer appears to be back in the game,” noted TD Securities deputy chief economist Millan Mulraine after the Department of Commerce’s February retail sales data was released. “We see this as further confirmation that the underlying momentum in the economy remains quite favorable.” In February, for the first time in three months, retail sales increased on a month-over-month basis, rather than decreasing. That retail sales growth reflects a comparable pickup in consumer spending, a measure that accounts for approximately 70 percent of gross domestic product in the United States.
For the past several months, as retail sales remained stagnant, economists have postulated that the extremely cold and wintery weather was responsible for low spending and the myriad of problems plaguing the economy, including weak job creation. But with the release of February’s retail data, it is clear that consumer spending is no longer the hostage of cold temperatures. However, the weekly numbers for March still indicate that spending is relatively soft.
The weekly snapshot of retail sales compiled by the industry trade groups — the International Council of Shopping Centers and Johnson Redbook have indicated that consumer spending was weak throughout the month of February, and March’s numbers have not notably improved. A January decrease in consumer spending is typical; shoppers often decrease expenditures following the holiday season, but both the same-store sales index compiled by ICSC with Goldman Sachs and the Johnson Redbook index showed that retail sales numbers have not yet improved significantly from January’s lows. For the week ended March 22, the same-store sales indices reflected ongoing weakness, although the Johnson Redbook same-store index was marginally stronger than in the previous week.
Warmer weather has so far failed to boost weekly readings of the ICSC-Goldman Sachs index. That measure — one of the most timely indicators of consumer spending — recorded extremely weak readings in February, hitting a recovery low of 0.0 percent week-over-week growth early in the month. The measure has rebounded to some degree, even though recent readings have been volatile. In the week ended March 15, the index retreated on weekly basis. Same-store sales growth contracted at a 1.5 percent week-over-week rate after increasing at a 0.7 rate in the previous week. Comparatively, the index rose 1.7 percent on a yearly basis, a slight improvement from the 1.5 percent gain recorded in the previous week.
“Sales on a year-over-year basis were a tad stronger though segment demand was mixed across retail categories,” ICSC Chief Economist Michael Niemira explained in a Tuesday press release. “According to the ICSC-GS consumers tracking survey, dollar and electronics stores saw a strong improvement while discounters and apparel stores improved on a year-over-year basis. However, business was softer than the same week of the prior year for grocery, drug, department, furniture stores and wholesale clubs.”
While ICSC data was mixed, Johnson Redbook’s weekly reading inched higher, although its monthly measure is still in negative territory. The index has expanded 3.1 percent over the past 12 months, an improvement from the previous week’s 2.8 percent rate of growth. Redbook’s monthly comparison also strengthened, contracting at a 0.4 percent rate following the previous week’s 0.5 percent rate of contraction.
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