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Friday, August 20, 2010

Early Indications of August Consumer Spending: Mixed Bag

With many economic indicators really being quite weak recently, I have been trying to look for earlier and earlier indications of data to try to get a step or two ahead of things. Given that much of the air pocket in economic growth he hit in about the middle of May was driven by consumer spending being atrocious, that is where it pays to focus at the moment.

For August, we are seeing mixed signals. As expected, housing is quite awful when you look at the weekly mortgage purchase applications. It is quite clear that consumer spending on housing and, by extension, residential investment will be quite moribund for some time to come. As housing and housing related industries comprise a large portion of consumer spending, that does bear some watching.

On the other two fronts, auto sales and chain store sales, things are looking fairly good... well, not bad at least. Early indications from Redbook are for an increase of about 1.0% month on month on a seasonally adjusted basis, which would be the first really solid month in quite a while. If we could string another one together in September, I would feel a lot better about the overall outlook. Auto sales are building off a little strength in July from early indications and may be as high as a 12 million annual rate. Put together, that would make a fairly solid month for consumer spending. http://www.dailyfinance.com/story/autos/august-auto-sales-are-zooming-along-so-far/19600754/

This is badly needed as it appears that the industrial sector is taking a significant pause by every early indication and that has been the sole driver of the economic recovery so far. If consumer demand at least appears to be out of a contractionary mode, that will give some additional impetus for inventory rebuilding and business investment. Worryingly, a great deal of consumer spending seems to be going to imports as is a good deal of business investment. Most of the second quarter weakness came from a horrid import number and if that continues we could be in trouble.

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