Poo-Poohed By Politicians And Pundits, The U.S. Economy Is Booming
Even as the economy continued to be portrayed as troubled by pundits and politicians last week, fresh evidence surfaced of the boom under way. Retail sales excluding gasoline, because it is volatile, rose 4.2% in the 12 months through October 2017. That’s much higher than the 3.1% rate of growth at the peak of the last economic boom.
Growth in retail sales was propelled by a surge in auto sales for the second straight month. Auto sales grew 4.9% in the 12 months through the end of October. That’s a key figure.
Retail sales reflect consumer spending and consumers represent about 70% of U.S. economic activity. Autos account for $101 billion of retail sales, making it the largest of the 15 categories of retail sales. The 4.9% growth rate in auto sales represents a large dollar amount.
Nonstore retailers, dominated by internet sellers with about $52 billion in sales annually, now dwarf the sales volume at department stores and other brick and mortar retail categories.
But the most important news in the retail figures just released was the 4.9% growth rate in auto sales in the 12 months through October because it amounts to an additional $4.8 billion in retail spending. Meanwhile, the second-largest retail category, nonstore retailers, which is dominated by online sellers, racked up a 7.4% rate of sales growth, equating to about $3.6 billion in sales growth over the 12 months through the end of October. Sales revenue among nonstore retailers grew to $52 billion over the 12 months.
The advent of online retailing continues to benefit the economy, often in unexpected ways. Amazon this past month has been cutting prices on goods sold by third-party merchants and on groceries sold by the recently acquired Whole Foods stores. It is fighting a challenge from Walmart, which is gaining traction and derives about half of its revenue from groceries. Never before has a retailer with Amazon’s influence existed and never before has a retailer this sizesubsidized prices聽on sales of its goods to buy market shares. This is helping keep inflation low and could help explain why inflation has remained mysteriously absent in this 102-month expansion.
In early November,聽The Wall Street Journal聽surveyed 58 economists and their consensus forecast was for average growth of 2.5% over the next five quarters. That’s a strong forecast for the months ahead.
Meanwhile, the Federal Reserve’s聽financial obligations ratio, which measures consumers’ ability to pay their fixed expenses monthly, is near a record low, according to its latest quarterly release. Rarely have consumers been in better a financial position.
Pundits and politicians, on both sides of the aisle, continue to mischaracterize the economy as troubled.
Democrats back the plan that bemoans unemployment and wage stagnation.
And House Speaker Paul Ryan, while addressing the House of Representatives on Thursday said, “living standards are stagnant,” adding “economic anxiety is high.”
Despite unusual political turbulence and unexpected changes in America’s economy, the Standard & Poor’s 500 stock index, which has repeatedly hit new highs in recent months, closed Friday at 2578.85, just a fraction off its highest close ever, as the new economic data encouraged investors.
Stocks are subject to sudden declines.聽A 10% or 15% drop could occur at any time if there is a change of sentiment or a bad event in the news,聽and the chance of a bear market decline of 20% or more increases as the eight-and-a-half-year bull market grows older. However, inflation is tame, the employment situation has not been this good since 2002, and productivity increased last quarter to keep the cost of employment low amid rising real wages.