Economy Watch: Consumers Had Small Spending Party in December
Consumer spending and consumer confidence tell different stories, and Alan Greenspan in 2005 was in no hurry to face the housing bubble.
By Dees Stribling, Contributing Editor
The U.S. Department of Commerce reported before the holiday weekend that retail sales were up 0.6 percent in December compared with November, the sixth monthly uptick in a row. For the entire year 2010, retail sales were up 6.7 percent compared with the previous year, the strongest yearly gain since 1999.
Cars and gasoline led the way. Without those components, retail sales would have been up 0.4 percent in December. Will the momentum last into 2011? Retailers certainly hope so.
“The economic uncertainty and consumer anguish that defined the past three years appears to be fading as increasing signs of growth and stability in the economy emerge,” Sandy Kennedy, president of the Retail Industry Leaders Association, said in a statement regarding the news, adding that “those retailers that refined [their] operations… are poised to realize considerable growth in sales and profitability.”
Yet consumers unexpectedly sour
Consumer confidence isn’t matching consumer spending, however, at least not according to the Thomson Reuters/University of Michigan preliminary index of consumer sentiment, which dropped to 72.7 for January, down from 74.5. Economists had predicted an uptick.
Perhaps they underestimated the impact of the spike in gas prices, which has represented the most painful upward pressure on the cost of living during the last month or so. Persistent unemployment was also probably a factor.
Wall Street took the day off for the Martin Luther King Jr. holiday, but had a bouncy up day on Friday, with the Dow Jones Industrial Average up 55.48 points, or 0.47 percent, and the S&P 500 up 0.74 percent. The Nasdaq was likewise in positive territory, up 0.73 percent, but that isn’t likely to last on Tuesday, with word of Steve Jobs’ medical issues bound to have an effect on Apple.
Talk real estate bubble, or have coffee?
Over the weekend, the Federal Reserve released full transcripts of its 2005 Open Market Committee meetings (summaries are released contemporaneously). In June of that year, Atlanta Fed President Jack Guynn warned of a possible chain of events that would cause a housing bubble to burst, and Alan Greenspan, then chairman, offered his reaction.
Guynn: “The ugly picture we have seen before–and that they think we may very likely see again before long–goes something like this: the drying up of sales of new units; the painful decision of developers to go ahead and complete the construction of additional units to make them salable, further depressing the market; and speculators who had hoped to see big capital gains walking away or defaulting on their contracts, giving their properties back to the lender. Perhaps it’s because of where I sit, but I am less comforted than some of my colleagues about the housing situation.”
Greenspan: “Let’s take a break for coffee.”