Data continues to surprise to the upside as consumers show more signs of life. Retail sales came in stronger this morning as data from Redbook and ICSC showed year over year gains of 4.4% and 3.2%. Sales have been strong in recent weeks as the early Easter has pulled sales into March. Nonetheless, there’s no denying the stronger spending trend even though the year over year comps are very easy. Government stimulus has substantially impacted consumer confidence over the last 18 months so it will be interesting to see if these trends are sustainable over the next 18 months as stimulus wears off.
Consumer confidence came in better than expected at 52.5 vs analysts expectations of 50. Despite the better than expected data, consumer confidence remains historically weak and can be primarily attributed to the weak jobs market. Main Street has yet to see the real benefits of this so-called “recovery” and it is reflected in depressed consumer confidence data.
Case/Shiller housing data showed some further stability in housing prices. Our opinion on housing is pretty straight forward. The huge inventory glut (as evidenced in the sizable jumps in inventory in the recent existing and new homes sales reports) shows that prices need to decline further. We are only back to Summer 2003 levels which places us roughly 85% above the 1990 levels. This is a mean reversion that will take years to play out and won’t fully finish until the government steps aside and stops attempting to price fix markets. Of course, we also understand that continued government stimulus will result in further price stability in the months ahead, however, once the stimulus ends it’s likely that housing will continue its natural trajectory – lower.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.