Tuesday, February 21, 2012

Economy: In Consumers We Trust 2012

Today was the informal end of the earning report season for Q4 2011. This morning four major retailers reported their quarterly numbers. Walmart, Macy’s, Home Depot and Saks Fifth Avenue all reported sales increases for their fourth quarters ending in January, writes the New York Times (nytimes.com). Walmart, the largest U.S. retailer, reported that January 2012, the last month of the quarter, was the strongest month in terms of sales and traffic.

It seems that consumer spending, the engine of the whole economy, is picking up after a sluggish Holiday season. That is not surprising. The consumers are benefiting from a healing job market (drivebycuriosity). The job gains are generating more spendable income and the falling weekly jobless claims signal that the risk of losing a job is shrinking. Helpful also is the rally on the stock markets because many consumer get wealthier which animates them to spend more (wealth effect). 

But there is a dark cloud on the horizon: The oil price screw is turning higher and higher, thanks to the Iran conflict. Higher prices at the gas pump could pour cold water on fledging consumer expenditures.

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