The American consumer is back. Not only are Americans buying more goods and services – more than previously reported – but their balance sheets are stronger, setting them up to buy even more, including big-ticket purchases like houses and cars.
That bodes well for an economy where consumers reign supreme, accounting for 70% of economic growth. It also keeps the U.S. on a trajectory of continued growth while other major regions are slowing down, like China, or remain sluggish, like the Eurozone.
Here are some of the latest stats feeding this optimism and, at the same time, reinforcing market sentiment that the Fed, despite China’s woes and Europe’s financial headaches, could raise interest rates as early as September, reversing a near zero-rate policy that has persisted for almost seven years.
Sign 1: Retail Sales
Americans bought more cars, clothing, furniture, building materials and garden equipment in July than in June and spent more in June than previously thought. July sales rose 0.6%, compared to the previous month, led by car sales, which jumped 1.4% the level of June retail sales was revised higher to unchanged from the 0.3% drop previously reported. Compared to a year ago retail sales in July were up 2.4%.
“Consumers came back to life in July after lying low in June,” writes Chris Christopher, director of U.S. consumer economics at IHS Global Insight. “Discretionary spending improved significantly. … There was hardly any bad news in this report. [The only losers were department and electronic stores.]….Looking ahead, we expect August retail sales excluding gasoline and autos to outpace July’s showing. Real consumer spending growth is likely to be slightly north of 3% for the third and fourth quarters of this year.” And that would boost overall economic growth as seen in the Commerce Dept’s GDP reports.
Sign 2: Jobs
Although the Labor Department’s weekly jobless claims report released today showed an increase in unemployment claims for the week ended August 8, the more important four-week moving average of claims fell 1,750 to 266,250 last week, the lowest level since April 2000.
The jobs report for July, released last Friday, showed payrolls gaining 215,000 jobs and the unemployment steady at 5.3%. June payrolls were revised higher to 231,000. Even wages, which haven’t always kept pace, rose, up 0.2%, in July.