As the last of Q1 data roll in showing Euro Zone economic growth accelerating (thanks to lower oil prices and aggressive Quantitative Easing by the European Central Bank), we are also getting glimpses of the early part of US Q2 economic growth (and remember one of my 2015 themes: all eyes are on the US economy which is expected to pull the global economy along in the 2nd half of 2015.
But also remember, one of my 2015 Themes is also to
"Expect the Unexpected".
The US consumer is approx. 70% of the US economy.
While the surveys tell us that the US consumer is more "confident", the US consumer is not spending:
According to the latest retail sales data released yesterday: April Retail Sales were unchanged from March, less than the expected growth of .2%.
In its latest statement, the US Federal Open Market Committee (FOMC) stated that it felt that the latest Q1 slowdown was "transitory" (i.e. temporary). However, as we start to get a glimpse of the Q2 economy, it appears that, although employment continues to grow (US jobless claims fell to another 15 year low according to today's data) the consumer is reluctant.
If consumers aren't spending, inventories will start to build on the shelves and producers will have to cut back on production.
Further, in order to reduce inventories, sellers will have to cut prices.
Reduced sales = reduced earnings.
Not good for share prices.
We shall have to watch the US consumer more closely going forward, however perhaps the changing demographic of the post - Great Recession era: aging "Baby Boomers" and frugal "Millenials" is creating a more "structural" shift in the US economy?
Something to think about.
...and this too!!
Scott Tomenson,CIM Managing Partner, Chief Investment Strategist