Rose Colored Glasses

From Bloomberg:

Retail Sales in U.S. Increase for a Second Month

Sales at U.S. retailers rose in August for a second consecutive month, easing concern the economy will stumble in the second half of the year.

Purchases increased 0.4 percent following a 0.3 percent gain in July that was smaller than previously estimated, Commerce Department figures showed today in Washington. Sales excluding automobiles advanced twice as much as forecast.

Demand at chains like Kohl’s Corp. and Ross Stores Inc. climbed as more states had tax-free holidays and some merchants offered bigger discounts to lure back-to-school shoppers. A lack of jobs and the need to repair household finances will probably restrain consumer spending, which accounts for about 70 percent of the economy, for the rest of the year.

“It’s reassuring,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, who correctly forecast the ex-auto sales figure. “It takes out some of the fears we had about a month ago about the economy maybe slipping into recession. If the labor market picks up, it’s sustainable.”


More wishful thinking on the consumer spending front. While it is a positive sign to see retail sales growing, the big picture remains grim. Deep discounts and tax free holidays can bring a temporary boost to sales, but the labor market must improve, the tax burden tempered, and the state and federal deficits reduced and eliminated before a true recovery can occur.

I believe it was David Rosenberg who recently pointed out the the US has a huge problem, its debt as a percentage of income is now 358%. So the next logical step in the progression of this recession is the reduction of debt. One way this will be accomplished is to reduce the number of government workers. Some have estimated that between 1 and 2 million will join the unemployment lines over the next two years as both states and the feds finally tackle the deficit problem. Undoubtedly this will reduce retails sales and consumer spending going forward.

Perhaps this is why gold (which just hit a record high this morning) continues to outperform bonds. Some investors are aware that there are few safe havens left, and stocks to this writer appear overbought.