U.S Consumer Spending and Confidence of Small Businesses Suggest More Troubles May Lie Ahead

Today's headline number on retail sales suggests things are improving. I say not so fast.

The improvement over last month simply got us back to where we were two months ago.

Both consumers and small businesses have little confidence in a marked improvement anytime soon.

Consumers Hit Stores, But Companies Aren't Buying It says this about the improvement in retail sales:

"Americans are starting to spend more in stores this back-to-school season, but companies still aren’t willing to bet on a big consumer rebound by stocking up on goods—at least not yet.

Retail and food-service sales jumped a higher-than-expected 0.8% last month, the Commerce Department said Tuesday, after falling for three months in a row—including a nasty 0.7% drop in June and a 0.1% slip in May. Yet other economic reports out today suggest sentiment among firms remains glum and re-stocking—a gauge of companies’ expectations of future demand—remains muted.

Inventories at U.S. businesses edged up only 0.1% in June as weak demand for goods kept firms from increasing their stockpiles. Meantime, a measure of confidence among small-business owners in July by the National Federation of Independent Business dropped again as firms worried about their earnings.

When businesses expect healthy sales in coming months, they stock up on inventory. In the second quarter of 2012, such stockpiling gave the economy a minor boost, contributing 0.32 percentage point of the nation’s 1.5% annualized rise in gross domestic product.

But it’s probably too early for U.S. businesses to be in anything other than “wait-and-see” mode given weak domestic demand, global economic concerns, European turmoil and the U.S. election.

Excluding auto sales—which can be volatile—July’s 0.8% jump in retail sales simply offsets a similar drop the month earlier. Americans still aren’t consistently using their credit cards more, Fed data show. And rising gas prices and food prices—due to the drought—could hurt the American consumer even as the job market improves.

The upshot: Muted growth in stockpiles suggests the dial hasn’t moved much for businesses: They still don’t expect a big bump in sales in coming months, or are too worried about economic volatility to really stock up. At the same time, they’re not sitting on huge amounts of inventory, which suggests they haven’t been left holding the bag from sluggish sales, either."

And Optimism Among Small Businesses Droops Again adds to the less-than-good news:

"Small-business owner confidence fell a bit further in July, dragged down by worries about earnings, according to data released Tuesday. . . .

 The report in general was downbeat about business conditions among small businesses. The view isn’t surprising given the other weak data reported in economic sectors from manufacturing to retailing.

“The Index has averaged 90 in this recovery, now 3 years old and is the worst recovery period from a recession,” since 1973 when the data began, said the report. . . .

Small business owners don’t expect business activity to improve much in the next six months."

Summary

We're still likely to avoid another recession in the U.S., but it's no sure thing by any means.

That said, at least we're farther from the recessionary cliff than Europe, small consolation that that is.

Wouldn't it be nice if the government got out of the way, and stopped dividing Americans from one another?

But that won't happen at least until after this fall's election, and maybe not even then.

Thanks. Bob.