Consumers appear to be holding back on buying non-essential goods, and this could impact the economic recovery.
The durable goods orders contracted a dismal 5.7% in March, according to the United States Census Bureau, representing the largest decline in seven months—a far cry from the 4.3% rise in February and well below the Briefing.com estimate calling for a four percent decline.
Taking out the volatile transportation portion, durable goods fell 1.4%, versus the Briefing.com estimate of -0.1%, equaling the second straight month of declines.
The durable goods readings have largely been inconsistent, as reflected in the chart below, and suggest the economic recovery may be at risk.
Chart copyright © Lombardi Publishing Corporation, 2013;
Data source: United States Census Bureau, April 25, 2013
When consumers are more confident, they tend to spend more on major purchases in the retail sector, such as homes, vehicles, furniture, appliances, and travel. This will impact the economic recovery, gross domestic product (GDP) growth, and the ability of companies to expand their businesses.
But whether it’s the added taxes or the fragile confidence from the lack of strong jobs growth, the decline in the demand for goods that are deemed non-essential should be a red flag that not everything is proceeding along smoothly, which could affect the economic recovery.
The fact remains that jobs creation is fragile and not expected to ratchet higher until 2014 and 2015, due to the slow economic recovery.
The recent 88,000 jobs created in March was weak, so it will be interesting to see what happens with the April non-farm payrolls reading due next Friday.
Retail sales have also been … Read More
One of the most important criteria for getting the economy back to optimal speed is for consumer confidence to begin accelerating. Much of a developed nation’s economy is based on consumer spending.
When making an economic forecast for a developed nation, taking into account shifts in consumer spending is extremely important. With new information raising doubts that consumer confidence will rise anytime soon, a more cautious economic forecast is necessary.
According to the Bloomberg Consumer Comfort Index, in February, the difference between positive expectations and negative expectations by consumers remained at –7 from the previous month. While current conditions by consumers in the Comfort Index rose during the week of February 17 to –33.4 from –35.9 the previous week, clearly, there is still a substantial amount of negativity when it comes to consumer confidence. (Source: Smialek, J., “Consumers in the US hold negative economic Outlook as fuel climbs,” Bloomberg, February 21, 2013.)
The composite reading in the Comfort Index shows a weak yet stable belief in the underlying economy. Interestingly, men have turned slightly more optimistic, with 34% reporting an improvement in the economy for February, versus only 24% in January. However, women turned more pessimistic in their opinion, with only 26% stating the economy is improving in February, versus 32% in January. Overall, the data points to continued weakness in consumer confidence.
I believe that several factors are causing this reduced level of consumer confidence. The obvious factor is the two percent increase in the payroll tax for Social Security. My economic forecast has to incorporate the lower level of take-home pay, especially for the middle- and lower-income earners…. Read More
Traders appear to have forgotten the massive economic mess happening across the Atlantic in the eurozone. Remember Greece? The European debt crisis took Greece down with two separate bailouts. It has been so dire for this beautiful country on the Mediterranean Sea that Greece required a second bailout to make the payments on its first emergency loan.
The reality is that the eurozone financial crisis is still around; the eurozone problem is not going away.
Consumer confidence in the eurozone came in at -23.9 in January, which was an improvement over the -26.5 in December, but the region has a long road ahead. (Source: European Commission web site, last accessed February 15, 2013.) The problem with the eurozone is not only tied to the massive debt loans that have impacted Greece, Spain, Ireland, Portugal, and Italy; it’s also tied to the ongoing recession and high unemployment rate.
The eurozone has recorded three straight months of contraction in its economy, contracting 0.6%, or about 2.5% on an annualized basis, in fourth quarter 2012, according to data from Eurostat. What was also a red flag were the economies of the eurozone’s two largest members: Germany, which shrunk by a worse-than-expected 0.6% in the fourth quarter, and France, whose economy contracted by 0.3% in the fourth quarter. My major concern is that the mess in the weak countries is driving down growth and pushing up the unemployment rate in France and Germany, the two pillars holding up the eurozone. Capital Economics suggested France and Germany will face another recession in 2013.
At the same time, a major issue is the region’s super-high unemployment … Read More
One of the most difficult concepts for both retail and professional investors and analysts is the incorporation of transitory or one-time events into information regarding economic growth and job creation.
What do I mean? There are many moving parts in the economy. Not all data can be compared on an equivalent basis. Even year-over-year data comparisons should incorporate far more variables.
As an example, recent data on both economic growth and job creation over the past six months have confused many professionals due to the many uncertainties affecting consumers and businesses.
We had the election, the fiscal cliff debate, and heated arguments by politicians on major structural issues, all of which created confusion with the data.
For the last six months, we have constantly heard from businesses that they were worried about the impact of the fiscal cliff. Many stated they were reluctant to expand their business; this sentiment can lead to a lower level of job creation, which would affect economic growth.
Is it reasonable to compare this latest set of data to the previous year’s data? What about the year before that? Clearly, the last six months were far different than the same time period last year. And since we can’t reasonably calculate how an individual or business would have acted without these uncertainties being present, data must be interpreted much more cautiously.
An example of interpreting behind the data is the recent release by The Conference Board of its Consumer Confidence Index for January, which declined to 58.6 from 66.7 in December. This was far lower than the median forecast in a Bloomberg survey of 64.0. January’s … Read More
When it comes to making an economic forecast for the U.S. economy in 2013, a huge stumbling block was the uncertainty prior to the deal to avert the fiscal cliff. The just-announced new deal to avert the fiscal cliff is absolutely pathetic and will not accomplish what many were hoping for; a comprehensive long-term deal to lower the U.S. budget deficit and create an environment that will foster long-term gross domestic product (GDP) growth.
The level of uncertainty has recently started to impact consumers. The impact on consumer confidence was noted during the latest Conference Board Index in which consumer confidence fell six percent to 65.1 in December from November, the lowest since August 2012. (Source: “The Conference Board Consumer Confidence Index® Declines,” The Conference Board, December 27, 2012.)
GDP growth is heavily dependent on consumer confidence. Since the majority of the U.S. GDP growth is based on consumer spending, any pullback in consumer confidence is a worrying sign, with its potential for lowering an economic forecast for 2013.
An interesting dynamic was that consumers assessed that current conditions improved in December from the previous month. Business conditions rose to 17.1% from 14.6% the previous month; however, expectations for business conditions over the next six months declined to 17.6% from 21.3%.
This might seem contradictory, but it really shows that while the current economy is somewhat improving, the political grandstanding and ineptitude to avert the fiscal cliff have been increasing concerns for the future GDP growth of the American economy. This type of uncertainty will certainly put a damper on any economic forecast.
This new compromised deal has plenty of … Read More
The fiscal cliff is causing a drag on the economy and, in particular, consumers’ desire to spend, due to the uncertainty of how the budgetary cuts and tax increases will impact income. If the fiscal cliff is allowed to proceed—and it will to some degree—the reality is that taxes will rise. I’m not sure if the middle class and those who earn less than $250,000 will be spared, but I do feel there will be a compromise made on the income tax increases.
In the meantime, consumers are likely to be hesitant to spend in the retail sector. The headline retail sales reading rose 0.3% in November, which was below the Briefing.com 0.6% estimate but up from -0.3% in October. The ex-auto reading was flat, lower than the Briefing.com 0.2% estimate. While the November numbers don’t translate into December, I’m sensing the uncertainty of the fiscal cliff will impact consumer spending in this key shopping season for the retail sector.
We are heading into the heart of the holiday shopping season. I’m sure the retail sector is anxiously praying for consumers to spend. A strong shopping season in the retail sector will also go a long way to helping the economic recovery, while also giving the stock market good news.
The two recent jobs reports added some optimism to the retail sector; albeit, I doubt it will be enough to drive consumers to the malls and online to spend. We need to see progressive and stronger job creation going forward to instill some confidence in shoppers. In the best-case scenario, if job creation rises, this would likely translate into higher … Read More
When it comes to forecasting economic growth, one has to pay close attention to consumer confidence. For developed nations, domestic spending makes up a large portion of an economy. If consumer confidence becomes troubled, this will certainly impact economic growth going forward.
Recently released data from Thomson Reuters/University of Michigan and their consumer sentiment index shows a decrease to 74.5 for December, as opposed to an estimated reading of 82 from a survey conducted by Bloomberg. November’s reading for consumer confidence was 82.7. The decrease in consumer confidence was the weakest in four months. (Source: “Michigan Consumer Sentiment Declines More Than Forecast,” Bloomberg, December 7, 2012.)
While economic growth has been weak for most of 2012, spending by consumers was relatively strong. However, I believe the increased discussion regarding the fiscal cliff issue and the constant bickering and ineptitude of politicians in averting drastic changes to fiscal policy is now weighing down consumer confidence. This increased awareness of the potential for a massive decrease in economic growth in 2013 will certainly continue to weigh down consumer confidence.
While various parts of the economy are helping consumer confidence, including increasing home prices and some job growth, albeit still tepid, the implementation of the fiscal cliff will have an extraordinary impact on economic growth. I believe that for a long time, most Americans were unaware of how severe the situation might be in 2013. Now that more news organizations are making Americans cognizant of the dire circumstances, consumer confidence is being negatively impacted.
According to the National Retail Federation, the four-day Thanksgiving weekend generated $59.1 billion in sales, an increase of 13% … Read More
During the current elections not only in America but around the world, there is a common theme that is emerging and that is the problem of a lack in job creation and an increase in income inequality. In many countries, including America, the disparity between the rich and the poor continues to grow. Along with this widening gap, there is a large difference between the viewpoints on how best to stop it or even to begin to shrink it; and along with this disparity, there is a decrease in consumer confidence, as the middle class increasingly shrinks in size.
While the left-leaning political parties around the world favor income redistribution in the absence of job creation to boost consumer confidence, the right-leaning political parties favor incentives for business support and creation. The question I ask is: are there any historical precedents that might help illuminate the current situation?
I believe the current lack of job creation and the widening gap between the rich and the poor that we’ve seen over the last 20 years is a direct result of the technological revolution. Historically, we can look back to the Industrial Revolution, which saw new ways of economic operation displace many workers and changes to the structure of the world impact the average citizen. As much as blacksmiths were hard-working persons 100 years ago, the introduction of the automobile put their jobs into obsolescence. Job creation for blacksmiths tanked along with consumer confidence for those affected by the decline in that industry.
One way to understand the lack of job creation within the manufacturing sector is to look at the total … Read More
The key holiday shopping season is closing in fast. With the critical “Black Friday,” November 23, a month away, the retail sector will be anxious to see if consumers deliver.
The recent jobs report added some optimism to the retail sector; albeit, I doubt it will be enough to drive consumers to the malls and online to spend. We need to see progressive jobs creation, rather than the single reading, and we want to see a positive pattern. If jobs continue to rise, this would likely translate into higher sales in the retail sector.
Thanksgiving weekend, beginning with Black Friday, is important, as you can see in the chart below. Retail sales have increased in three straight years and the hope is for 2012 to be a banner year. The National Retail Federation is optimistic and estimates this holiday shopping season will generate sales of $586 billion, up from $563 billion in 2011. (Source: “Holiday FAQ,” National Retail Federation, accessed October 19, 2012.)
Copyright Lombardi Publishing 2012; data
source: National Retail Federation
The monthly retail sales numbers in the retail sector are showing some encouraging signs. The Thomson Reuters Same Store Sales Index (comprising of 17 U.S. chains) contracted 3.6% in September, which was in line with the estimate but well down from the 6.4% increase in September 2011. (Source: “U.S. retailers,” September sales up before holiday rush,” Reuters, October 4, 2012.) There’s a lot of work ahead for the retail sector
Consumer confidence in September was encouraging, with a reading of 70.3, above the estimate of 63.0, according to Briefing.com, and the upwardly revised 61.3 in August. Yet the … Read More
An interesting new study shows just how much work is needed for market sentiment to change, as consumer confidence remains in a deep hole. Done by the Federal Reserve, the study looked at the median net worth of the average American family. The median net worth dropped from $126,400 in 2007 to $77,300 in 2010, a decline of 38.8%!
For consumer confidence to remain strong, we must have a sense that the wealth accumulated is going up, not down. It’s no wonder the economy has been slow to recover; market sentiment is reflecting the hesitation by the average American to spend in the way they did before. With so much wealth lost, consumer confidence will remain down for some period of time. Millions of Americans certainly don’t feel secure when over 38% of their wealth has been wiped out in just a few short years.
Market sentiment is of course made up of many parts. The stock market has performed very well since the bottom in March 2009. But the magnitude of the drop in household wealth is truly amazing; this appears to be keeping the market from continuing its move upwards. While most of the loss in wealth is associated with the drop in real estate values, the effect this has on consumer confidence cannot be understated. For people who have saved and believed they were doing the “right” thing, it appears this strategy now seems to have backfired. With consumer confidence low, this translates into low confidence amongst business leaders in regards to what they see for the future. This in turn is reflected by fewer jobs being … Read More
It is amazing to me how many pundits are claiming that economic growth in 2012 in the U.S. will rise.
I think everyone can agree that durable goods orders are an important indicator of economic growth. Durable goods are manufactured goods that tend to last at least three years, like a stove or a refrigerator.
They are a good indication of consumer confidence, because durable goods orders are usually large purchases that a consumer would make only if he/she has a strong degree of consumer confidence.
Year-over-year growth in durable goods orders when removing defense and aircraft orders is up in the low single digits in the first quarter of 2012 when compared to 2011. However, when this same measure of economic growth is taken from 2010 to 2011, orders are up over 17%. Growth in durable goods, which specifically measures consumer confidence, is slowing in 2012.
Another measure of economic growth is inflation-adjusted consumption. Since consumer spending makes up 70% of gross domestic product (GDP), this is obviously a strong measure of consumer confidence and economic growth.
Year-over-year growth from 2010 to 2011 in inflation-adjusted consumption is roughly three percent. However, when taking year-over-year first quarter 2011 to 2012 growth in inflation-adjusted consumption, it is roughly half that three-percent growth level.
This means that the rate of growth in durable goods and consumption is actually falling in 2012, compared to 2011, which suggests weak consumer confidence and illustrates that economic growth is actually slowing.
Inflation-adjusted disposable income measures how much money is left over for the consumer after taxes and inflation are removed from income, and so is a … Read More