A bit of a mixed bag this morning on the data front. Consumer sentiment and retail sales appear to be at odds this as retail sales surpass expectations and sentiment comes in below expectations. Retail sales showed continuing signs of strength as the headline figure came in at 0.3% month over month versus expectations of -0.2%. Ex-autos and gasoline the data was even more impressive at 0.9%. Consumer sentiment dipped to 72.5 versus expectations of 74.
Clearly, the retail sales component of this morning’s data is more important and perhaps, more alarming. As we’ve previously noted, the U.S. consumer is still sitting on a $1.4T hole in their balance sheet. By our estimates, this means there are roughly two years of de-leveraging yet to be done. As we saw in the consumer credit report this month U.S. consumers are back to whipping out the old credit card and beginning to leverage themselves up even more. While public sector spending remains robust the private sector spending (consumer specifically) is simply not sustainable at this pace. American’s have consumed more than they’ve earned for 6 years running and it has finally come home to roost. While many view this retail sales data as a positive I am a bit more skeptical of the long-term health of the consumer based on the false idea that a continued credit binge is a positive.
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.
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