Reports of the death of the U.S. consumer have been greatly exaggerated. This morning the Commerce Department reported that March retail sales rose a better than expected 1.6 percent--one more testament to the American will to consume. This isn't a one-off event. To use a favorite economist's phrase, the consumer has been remarkably robust throughout this recession, defying almost every forecast in sight.
After reviewing this morning's retail sales data, Ken Mayland, president of Clearview Economics told Bloomberg news, "The talk about the ‘new consumer’ turns out to be a lot of rubbish. We’re seeing vestiges of the ‘old consumer.’"
The following chart taken from a recent presentation by Liz Ann Sonders, Chief Investment Strategist at Charles Schwab & Co, illustrates my point.
Liz Ann Sonders, Market Snapshot, April 2010
This chart compares the components of GDP growth in the U.S. between the first quarter of 2009 (the worst quarter in the recession) with fourth quarter of 2009. Most of us remember the dramatic (and traumatic!) collapse in business and residential investment in Q1 2009. And we all know that the consumer has not been a big driver of growth for the past couple of years. But how many would have expected the consumer to have remained so steady throughout the carnage we have experienced? Certainly not I.
The chart begs another question: where is the "stimulus" bill? Uncle Barak and the White House spin machine have been working overtime to get us all believe that the economy would have sunk without their trillion dollar boondogle, but the numbers don't bear this out. More growth from government spending is probably on the way, but the real drivers of the recovery so far have been exports and business investment--primarily in inventories.
For equity investors, this morning's news is encouraging. A resurgent consumer will give businesses even greater confidence to hire workers, invest in their businesses and increase production--all of which will buoy corporate profits and boost equity values. For bond investors, this is just one more indication that the recent trend toward higher long-term rates will be with us for a while.