By Profit Confidential
Finally, some good economic news is coming to the U.S. economy…
The U.S. Census Bureau has reported that retail and food services sales for the month of May, adjusted for seasonal effects, increased 0.6% from April and 4.3% from the same period a year ago.(Source: U.S. Census Bureau, June 13, 2013.) This is the first report I’ve seen in a long time that shows increasing consumer spending in the U.S. economy.
And the Thomson Reuters/University of Michigan Consumer Confidence Index for May showed consumer spending increasing as well. The index registered at 84.5 in May, improving from 76.4 in April. (Source: Bloomberg, May 31, 2013.) This was the highest level the index has been at since July of 2007.
While this is all good news, my concerns about the U.S. economy remain…
Since the financial crisis in the U.S. economy, the Federal Reserve has been increasing the size of its balance sheet (printing trillions of dollars in new money) and the U.S. government has been spending rigorously, all for the sake of spurring economic growth. Consumer spending in the U.S. economy makes up 70% of our gross domestic product (GDP); hence, it’s vitally important that consumer spending rises if we are to have a sustainable economic recovery.
As it stands, the Federal Reserve is still creating $85.0 billion a month in new money to purchase government bonds and mortgage-backed securities. This may be the biggest reason why economic numbers like May’s retail sales are looking better.
But the unemployment rate in the U.S. economy is still staggeringly high. According to the most recent jobs market report, there are almost 12 million people who are jobless in the U.S. economy; more than 15% of the U.S. population is on some form of food stamps, and that number has been increasing at a serious pace.
Last but not least, there are still millions of Americans in the U.S. economy who are living in a house with negative equity—their house is worth less than the loan on their home.
The minor “pop” we are seeing for some U.S. economic numbers could turn in the wrong direction very quickly. Troubles from the global economy will eventually move into the U.S. economy. Retail sales and consumer confidence increasing is certainly a step in the right direction, but I wouldn’t break out the champagne yet.
What He Said:
“Interest rates at a 40-year low: The Fed has made borrowing as easy as possible, resulting in a huge appetite for loans and mortgages. We are nearing a debt crisis.” Michael Lombardi in Profit Confidential, April 8, 2004. Michael first started warning about the negative repercussions of then Fed Governor Greenspan’s low interest rate policy when the Fed first dropped interest rates to one percent in 2004.
Article by profitconfidential.com
