Economic Notes: Profiles in Caution
2/15/2010
By Patrick O'Keefe, Director of Economic Research, J.H. Cohn
Retail sales
rose in January for the third time in four months.
The monthly increase was widespread, with all but a few business clusters (furniture, building materials, and miscellaneous stores) recording gains. Auto sales were virtually unchanged (-0.1%).
January’s gains continued the gradual upward trend in retail sales that prevailed through most of 2009 as incomes inched higher amid slowing job losses.
Compared to January 2009, retail sales were up 4.7% (about $16 billion), but almost one-half (49%) of the increase was due to higher gasoline prices (up 43.9% year-on-year).
Although consumers have gradually increased their spending, they remain cautious. The mid-February Reuters/University of Michigan Index of Consumer Sentiment, which hit a two-year high in January, retreated a bit in February. Nonetheless, consumer confidence remains well above its nadir during the financial panic of 2008.
Consumer caution is evident in the continuing decline in consumer credit down 4.8% from its July 2008 peak. Coincidentally, the household sector has been saving at a rate unseen since the late 1990s.
These data define today’s consumers: moderate spenders willing to restrain their credit impulse in favor of increased savings – profiles in caution.
Since consumer spending accounts for the bulk of final demand, the shift from borrow-and-spend to a more balanced allocation of earnings will result in a lower, but far more sustainable, rate of growth – and that is essential to the economy’s longer-term vitality.
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