5 reasons holiday spending will surprise

The great run-up in equities has done little to change the minds of the vocal bears.  We are constantly inundated by media stories of gloom & doom – presumably because that is what gathers the most eyeballs.  There is good reason for the prevailing negative sentiment, of course:  in 10 years, investors have experienced two major crises which resulted in 50% or greater drawdowns in the S&P 500.  This has been accompanied by large economic restructuring, leaving millions of Americans out of jobs.

The resultant damage to psychology has impaired many of the nation’s investors’ ability to recognize positive economic news.  Yes: we have petulantly persistent unemployment problem, but that has actually become separated from our *employment* problem.  The latter has actually substantially improved, gaining more than half a million payrolls since the series troughed.

The data continues to suggest an improving economy.  There is a positive follow-through in almost all macro data, roughly following in the leading and lagging pattern anticipated for recovery.  The healing begins with an increase in productivity, hours worked, production & investment.  It is capped by the final sales that stem from new jobs created. In the past, relentless & levered consumer spending has provided a very resilient foundation for economic recovery.  The terrifying factor present in this deep recession is the delevering of the consumer.  

By mid 2010, it became obvious that business was roaring back – but the consumer was still delevering.  The economy was being dragged out of recession by government & business investment.

This leads us to our 5 reasons holiday spending will surprise:

Reason 1: Employment is gaining traction

Although 2010 represents some serious distortions from the decennial census, those numbers should mostly be worked off, and the reversal is apparent.  Private payrolls present a less confusing situation:  they are up by around a million from its trough.  Finally, the year-over-year change in private compensation has bounced substantially, providing a picture of increased traction for those 80% with skills in demand.

Reason 2: Personal Income is at record high


Personal income is up $400 billion dollars over this time last year.  Calculated at an annualised & seasonally adjusted rate of $12.571T, Personal Income is at an all-time high.  There is no doubt that the new highs are supported by the record government social benefits accounting for $2.293T of that.

Reason 3: Personal Consumption Expenditures & Final Sales are also at record high

Businesses on the receiving end of this spending don’t care where the money originates from (at least in the near-term).  Despite the future demand theft from tax credits & rebates like “cash for clunkers”, durable goods are remarkably strong.  Final sales are also at record highs.

Reason 4: Consumer Credit is expanding – finally!


In raw, non-seasonal adjusted bases, consumer credit increased by $20B month-over-month!  Seasonal adjustment hides this.  This is an artifact of previous relentless strength this series has been carried by in the past.  The recent numbers are very positive – and highly unexpected by most analysts.

Reason 5: Chinese imports are at record highs

Chinese imports are at record highs.  Domestic industrial production of consumer goods are in a strong V-shaped rebound.  The end to the inventory rebuilding cycle has erroneously been called by looking at 2nd and 3rd derivatives:  looking at the raw chart, it’s easy to make the determination that we’re no-where close to completion.  This means more jobs.


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