Off to the Mall

AFTER TWO PAINFUL YEARS of retrenchment, American consumers are flexing their wallets again. They have paid down debt, boosted their savings and otherwise strengthened their personal balance sheets since the recession hit with terrifying force in the second half of 2008.

As a result of their improving circumstances, the nation's merchants are likely to enjoy a jolly holiday season, with retail sales up 3.5% to 4%, exceeding both last year's meager 0.4% gain and expectations of 2.3% growth forecast by the National Retail Federation. More important, the consumer-dependent U.S. economy could grow by as much as 4% in 2011, well ahead of the current consensus estimate of a 2.4% increase in next year's gross domestic product. Consumer spending accounts for more than 70% of GDP, although that figure includes government spending on health care.

There's always a fine line between hope and reality. The recent strength in retail sales, regardless of hope, is reality based largely on currency devaluation. The secular down trend in consumer spending that started in 2002 and accelerated in 2006remains unperturbed. The up tick since mid 2010, unfortunately, is nothing more than noise within the confines of the secular down trend.

Gold-Adjusted Retail Sales (RSGLDR) and YOY Change


Source: online.barrons.com