This article was published by The McAlvany Intelligence Advisor on Friday, December 27, 2019:
All the numbers aren’t in yet, but it’s clear that the American consumer is happy. He is taking advantage of the opportunities afforded him by the most marvelous engine of economic improvement the world has ever seen: the private capitalist (non) system called the Free Market.
It isn’t really a system, but a highly complex network of individuals each seeking to improve their own economic welfare the best way they know how. It’s Adam Smith’s “Invisible Hand “at work:
As every individual, therefore, endeavors as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value, every individual necessarily labors to render the annual revenue of the society as great as he can.
He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it … he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention….
By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it.
Forecasters shouldn’t have been surprised. The numbers from November – a record number of new jobs, consumer spending up 0.4 percent from October – should have given them a clue.
Consumers launched themselves into the holiday shopping season with a vengeance – some say abandon – setting records along the way. When President Trump learned from MasterCard that the American shopper set records over the holidays, he tweeted in capital letters:“2019 HOLIDAY RETAIL SALES WERE UP 3.4% FROM LAST YEAR, THE BIGGEST NUMBER IN U.S. HISTORY. CONGRATULATIONS AMERICA!”
That wasn’t the half of it. Shippers like UPS and FedEx fell behind, and the U.S. Postal Service had to come to their rescue. And still many packages weren’t delivered on time. FedEx thought they were ready for the onslaught – the holiday shopping season this year had six fewer days in it than last year, so shoppers put unexpected pressure on shippers as a result – expecting it would handle some 33 million packages on the Monday after Thanksgiving. Instead FedEx handled a mountain of nearly 38 million packages that day.
And the momentum carried over right up until midnight Christmas Eve, with Amazon (with its own fleet of delivery vans) issuing (no doubt with a decided sigh of relief) a note that it delivered its last package in Seattle at 11:59pm on Tuesday.
MasterCard forecast that holiday shopping would jump by 3.1 percent over last year. Instead, as the President celebrated, shopping increased by 3.4 percent. This exceeded forecasts by PricewaterhouseCoopers, the consulting firm, that holiday sales would rise just 2.7 percent.
Online sales also jumped by nearly 20 percent over last year, with shoppers spending more than $125 billion digitally from November 1 through last Thursday. Translation: despite the jump in ecommerce, retailers – big box stores and department stores – still make up more than 80 percent of total sales. It’s too early for all the numbers to be available, but one number clearly will stand out: U.S. shoppers, enjoying wage increases and record low unemployment, spent four times as much this year at the mall than they did online. When all the numbers are in, the U.S. consumer will have spent a trillion dollars over the holidays.
Consumers didn’t just spend on clothing either. Sales of high-tech gadgets, electronics as well as appliances, were up nearly five percent compared to last year. And they’re not just spending at the mall, either. Thanks to lower interest rates, they are buying homes as well, pushing permits and new housing starts to highs not seen in years.
It ultimately comes down to sentiment: confidence in the future. With layoffs low, wages high, the economy well into its 11th year of expansion (a record), and the Fed stepping aside with promises not to raise interest rates any time soon, consumers are not only spending freely, they are also saving prudently. According to the St. Louis Fed, the average American consumer is saving 7.9 percent of his take-home wages. By comparison he was saving just 2.7 percent in the summer of 2005, just before the onset of the Great Recession.
The stock market – considered a leading economic indicator – continues to notch nearly daily new highs in the popular averages. This bodes well as these indices are considered a forward look at economic performance six months out.
With trade talks closing in on the formal signing of Phase One with China, and rumors that the White House is considering another cut in income taxes, there remain few reasons why December’s shopping spree isn’t a fluke. The American consumer is doing what he does best: improving his standard of living by taking advantage of the amazing offerings that are only available in a free market, private capitalist system.
And improving the lives of others as he does so.
The Wall Street Journal: Last-Minute Shoppers Rushed to Online Retailers
Financial Times: Strength of US consumer shows in healthy retail sales
St. Louis Fed: Personal Saving Rate 7.9 percent in November