Spending government printed dollars is a healthy consumer...?
Updated: Jun 8
This past Thursday we received economic data for the retail sales numbers and industrial production. These numbers were touted as an amazing achievement on CNBC and the beginning of an economic boom unperilled by any other time experienced in the United States. In my view these numbers represent red flags that should motivate investors into global markets outside the United States. At least that is what we are doing with our clients-- Trying to find markets abroad that pay dividends in other currencies to take advantage of the "currency risk" they offer.
JANUARY RETAIL SALES: 5.3% increase month over month.
January retail sales were up reflecting the stimulus checks that were hitting consumer bank accounts.
FEBRUARY RETAIL SALES: Down 2.7%-- No stimulus checks.
It's clear that stimulus checks are having a major impact on retail sales, as they are designed to, from January to February. Let's explore the ramifications of the continuing stimulus into the month of March.
MARCH RETAIL SALES: 9.8% Gain!
Analysts were expecting a big increase in retail sales in March due to more stimulus checks hitting American bank account's. The expectation was a 5.6% rise in month over month sales. What we received was a 9.8% gain! This is almost double what was expected from analysts. Even when we take out oil from retail sales analysts were expecting a 4.4% rise and we received an 8.2% gain.
CNBC touts this as a huge victory for a coiled economy ready to explode. But these retail sales numbers don't adjust for inflation. It is impossible to tell if these figures are solely a byproduct of more consumer spending to obtain more goods or if it is just requiring more money to purchase the same amount of goods we are used too. I presume it is a mixture of both but is increasing towards the latter as this cycle continues.
After all, consumers are spending government printed dollars on consumer goods vs. their rent or student government payments due to the moratoriums placed on both. The idea that we have a healthy robust consumer because they are spending dollars they didn't earn and ignoring bills they legitimately have seems out of whack.
More proof of the consumer spending government dollars on consumer goods instead of rent, mortgages, or student debt is even more evident in our exploding trade deficits. In 2020 we hit a record trade deficit of $915B. If these dollars were going into domestic liabilities we would see smaller retail sales numbers.
The flip side of this equation is our weakening industrial production pressuring our trade deficits...
Analysts expected a 2.8% rebound in March. We received only a 1.4% rebound. Our consumer spending nearly doubled while our industrial output halved. How CNBC believes this is evidence of an economy ready to explode is beyond me. We have a weakening economy that provides less goods and services and is incurring more debt through government money printing for the consumer. I can't think of a worse idea for an economy.
Now lets get to the shipping container evidence...
The picture to the left are empty shipping containers sitting off of the coast of California. These containers typically bring goods from China to California and are reloaded with American goods to be exported. Today, these containers sit empty parked off of the coast of California because the US production can't keep pace with our imports fueled by spending government dollars inflating our consumer.
COCA COLA, J-M SMUCKER, AND KIMBERLY CLARK CEO'S ALL STATED THEY MUST RAISE PRICES TO OFFSET COMMONDITIY PRICES DURING THEIR LAST EARNINGS CALL.
CEO's are also jumping on earnings calls to announce they are having to raise prices to combat rising commodity prices. All three CEO's are hedging their bets to see rising costs throughout 2021 and throughout 2022. The rising commodity prices is a direct reflection of a softening U.S. dollar. This is all the more reason to begin investing in other countries to take advantage of the currency diversification that offers. All of the data points to this as well as the largest CEO's in the world are suggesting the same with how they must operate their business. The cycle of rising commodity prices and softening US dollar cycle is just beginning. The door is still open to take advantage of this trade. Buy commodity stocks and invest in other countries with stable currencies and businesses. It is that simple.
John Lawrence is a financial advisor and founder/owner of J.A. Lawrence Wealth Management.