Consumers Are Still Spending Away

One of the concerns many economists had going into this year was that the rise in payroll taxes would cause Americans to rein in their consumer spending. The initial evidence suggests that just ain’t the case. Americans are as shopper-happy as ever. Shopping, it seems, is our national obsession.

I’m hard pressed to call Washington’s policies “austerity;” Uncle Sam is still going to run a sizeable deficit this year, but there clearly will be a fiscal drag on the economy this year. Fortunately, the economy seems to be at the point where it can shoulder that burden. For example, both Ford ($F) and GM expect sales this year to be their best since 2007. We had massive deficits a few years ago, and consumer spending was hard to find.

As I mentioned in a recent CWS Market Review, the key equation that’s under-pinned this market is wherever consumer spending intersects with financing. People buying. People borrowing to do that buying. Banks lending to people to do that buying. Any good company in that constellation has done well.

There are two other important positives to highlight. One is that Corporate America generally has a very strong balance sheet: low debt and lots of cash. Perhaps too much cash. The other is that the economy will probably be helped by businesses restocking their inventory. That should add a little to GDP growth this year. JPMorgan recently said that we’re not too far from a picture-perfect world.

Posted by on March 11th, 2013 at 9:24 am


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