Retail Sales Dynamics Still Weak
Time is a wonderful thing.
Having plenty of it pass since the Q1 2014 final U.S. GDP report of negative 2.9 percent has helped the Street to forget that weather was the laughable excuse for the poor economic data.
Thursday morning, meanwhile, Morgan Stanley (NYSE: MS) was out with a note highlighting the drag on retail sales. The bank sees a prolonged period of rebalancing, job growth and rising wealth to result in healthier consumer balance sheets.
The change consumers forced on their debt levels is seen as having caused 2013 and H1 2014 retail sales growth to fall one percent short of capacity.
However, Morgan Stanley's leading indicator for retail sales shows an inflection point has been reached.
Consumers have remained unwilling to spend in light of their relative ability to spend. According to revolving credit, levels have remained sluggish, and mortgage equity withdrawals are still negative.
The more disturbing part of the consumer story is the lack of savings in the face of a desire to rebalance consumer finances. The savings rate for U.S. civilians has remained below the long-term average for much of the past 20 years. Further dampening the retail sales outlook will be high-impact events. Morgan Stanley uses a federal spending example to illustrate this.
"Unless Congress acts to fund a dwindling federal trust fund," it notes, "all road construction spending will be limited beginning August 1, 2014."
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