Economic Insights - August 2013

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Good things are starting to happen in the U.S. economy, despite the continuation of dysfunctional fiscal policies and relatively ineffective monetary policies. That has translated into steady but anemic growth that will continue through the third quarter.

Let's look at the specifics: The sequester and fiscal cliff deal definitely haven't "killed the consumer." Despite predictions of doom and gloom early in 2013, retail sales have continued to march higher. They were up 0.4 percent in June, and were up 5.7 percent from a year earlier. With consumer prices up about 1.6 percent from 2012, "real" inflation-adjusted sales were up more than 4 percent over the preceding year. Building materials, which fell 2.2 percent, created the largest drag on sales in June. Given the rebound in housing, these sales should bounce back in the next few months.

"Core" sales, which exclude autos, building materials, and gasoline, rose 0.1 percent in June, the twelfth consecutive gain. For the rest of 2013, we expect two major themes to play out for the consumer:

  • First, an acceleration in consumer spending growth versus the past couple of years, despite higher taxes and the sequester.
  • Second, a transition away from growth in auto sales and toward other areas, like furniture, appliances, and building materials.

Consumer spending should accelerate because of continued growth in jobs, hours, and wages. In addition, households have the lowest ratio of debt service plus other recurring monthly payments to income since the early 1980s.


First Trust Advisors, July 15, 2013, "June Retail Sales," by Brian S. Wesbury, et al. © 2013 First Trust Advisors, L.P. All rights reserved.

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Non-farm payrolls increased 195,000 in June and were up 265,000, including revisions to prior months. Government payrolls are still shrinking, so all of the gains were in the private sector.

Civilian employment, an alternative measure of jobs that includes small-business start-ups, rose 160,000, while the labor force was up 177,000. Total hours...

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