Very Good News from ConsumersPosted on August 13th, 2011 No comments
On August 12 the Census Bureau told us that total retail and food services sales for July were a seasonally adjusted record of $390.4 billion. That was an increase of 0.5 percent from June (which itself was revised upward from a 0.1 to a 0.3 percent increase from May) and was 8.5 percent above July 2010.
Retail sales alone were a record $349.5 billion, up 0.6 percent from May and 8.6 percent above a year earlier. Gasoline stations had the biggest increase, up 23.6 percent from a year earlier.
Total retail and food services sales for the first seven months of 2011 were $2.66 trillion. That’s up 7.9 percent from the same period of 2010.
This very good report should dispel much of the “doom and gloom” talk that’s been going around the past two weeks. It marks a very good start to personal consumption expenditures for the third quarter. They should make a much larger contribution to real GDP this quarter than the paltry 0.07 percent in the second quarter. That was the lowest since the outright contractions to growth from real PCE in all four quarters of 2008 and the first two quarters of 2009. It was 1.47 percent in the first quarter of 2011.
Consumers are obviously spending freely despite being miserable about the economic outlook. On August 12 Reuters reported that the University of Michigan Index of Consumer Sentiment (ICS) dropped to 54.9 (March 1966=100) in the first half of August from the already low level of 63.7.
That’s the lowest number since the record of 51.7 set in May 1980. That was in the depths of the 1980 recession, which was triggered by President Carter’s decision to use the Credit Control Act of 1969 in a futile effort to reduce inflation, which was running well above 10.0 percent at the time.
Consumer spending makes up a little over 70.0 percent of real GDP. Thus, it’s critical that consumers keep on shopping no matter how unhappy they are with the economic environment.
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