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Retail sales rose by 1.3% in November. That was better than expected and makes for a solid counterpoint to the disappointment from Black Friday sales numbers. Auto sales were up too, which is a positive sign. Many were expecting a sharp drop in auto sales after the Cash for Clunkers program ended.
The relatively strong retail numbers are being pointed towards as evidence that American consumers are feeling better about the economy. Some analysts are even saying that the decline in the rate of unemployment is a factor.
While I agree that Americans may be feeling better about the economy, I’m hesitant to say it has anything to do with the unemployment picture. And I definitely think it’s too soon to call the slightly improved unemployment rate a trend.
*****The broadest measure of unemployment, the U-6, which includes people who have dropped off the unemployment benefit rolls, stands at 17.2% or so. That’s bad. And it’s reasonable to believe that there is a point where unemployment simply can’t get worse. I don’t know if that level is 17%, but it doesn’t much matter. Just because we see unemployment hit a maximum doesn’t by itself mean companies are going to start hiring.
If U.S. companies can meet demand with their current work force, then there’s no need to hire. And frankly, a 1.2% rise in retail sales does not suggest a jump in demand. It’s the holiday season. I believe consumers are blowing off steam from 18 months of economic anxiety. I can practically hear people saying “Ya know what? I don’t care if I can’t make a house or credit card payment. I’m going to buy some presents for the people I love and try and bring a little happiness to what’s been a depressing year.”
Maybe I’m being simple. But I can easily imagine year-over-year retail sales numbers falling after we get through the holidays.
*****If you want to see some impressive retail sales numbers, have a look at the 17% annual gain in retail sales China is posting. Spending is up across the board – cars, TVs, refrigerators, ovens. You name it, the Chinese are buying more of it.
And the Chinese are buying more and keeping savings at the absurdly high 40% range. Of course, we can’t fathom such a high saving rate in the U.S., especially with our social security and Medicare contributions. It’s clear that much of the boom in Chinese consumer spending is being supported by an expansion of credit. Some take that to mean there’s a credit bubble going on in China and that it will all come crashing down.
Don’t buy into this line of thinking. China has over $2 trillion in currency reserves. That’s the profits the country has amassed from its export economy. Sure, more Chinese have gotten a credit card or made a purchase on credit. There is now one credit card for every 8 Chinese citizens. In the U.S, there are 2 credit cards for every citizen. And that’s after untold numbers of cards were cancelled in the last couple of years. So tell me, who’s got the credit problem?
*****It should also be noted that there’s an efficiency difference to Chinese buying. In the auto arena, China bought 12.8 million cars, compared to 10.3 million in the U.S. But the average sale price in China is $17,000 compared to $30,000 in the U.S. Chinese buy smaller, cheaper cars. They use less material to make, and they use less gas to operarate.
This is an important distinction. The average Chinese citizen will be much less affected by higher oil prices because they use gasoline more efficiently. And on a cultural level, this efficiency component to spending is significant.
*****The bottom line is that China is growing. The U.S., on the other hand is desperately trying to cling to growth levels of the past. Now, I don’t mean to sound negative on the U.S. I’m not. I’m very optimistic about the future for America.
But from an investment perspective, China cannot be ignored. We are seeing the start of China’s transition from being purely export oriented to developing real domestic demand. It’s like buying U.S. stocks in the early 1950s, right as the middle class was emerging.
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*****Finally, here’s TradeMaster Daiy Stock Alerts’ Jason Cimpl with some chart analysis of natural gas prices. As you’ll see, Jason believes gas prices have bottomed and will be playing a large bounce to the upside over the next few months. You can see the video HERE.