The labor market is strong. Wages are - slowly - rising. However, so far in 2018, sales have been relatively tepid.
For example, in February, headline retail sales dipped -0.1% and auto sales were also down.
What gives?
Consumer spending is the major contributor to GDP and accounts for about 70% of all US economic growth. Without it, GDP can’t accelerate.
Some investors are claiming this is a warning sign recession is imminent. We don’t agree.
Firstly, what these early ’18 figures belie is the strong 12-month data. Overall retail sales are up more than 4% from a year ago. Yes, the February data shows decreases, but these are off from super solid 12-month figures.
Secondly, strong employment growth, stable disposable incomes, all-time high household net worth and high levels of consumer confidence bode well for increased spending.
Weekly Update through March 16, 2018 The S&P 500 lost -1.20%, even as the Dow Jones declined -1.51%, the Russell 2000 lost -65bps and the Nasdaq lost -1.02%.
As for US bonds, they gained 22bps.
Globally, the MSCI World Index lost -65bps and the Barclays Global Aggregate Bond Index gained 29bps.
The Euro Stoxx 50 added 49bps in local-currency (Euro) and 26bps in USD. Meanwhile, the Topix gained 1.23% in local-currency (Yen) and gained 1.93% in USD.
