For weeks, we have been told that falling gasoline prices should put more money in the pockets of the consumer. Money that could then be spent elsewhere. However, that conventional wisdom ignores all other factors that influence consumer spending such as indebtedness, inflation, income, job security and, the need to save. That conventional wisdom was certainly dashed when the December Retail Sales Report was released by the Commerce Department.
Despite the drop in gasoline prices, retail sales fell nearly a full percent to -.9%. This quickly caused the stock market to sell off by more than 300 points. The consensus of economists was that the sales number would be tempered by lower oil prices but, that overall sales would rise one-tenth of a percent with consumers spending more in the all-important Christmas month. Instead, the consumer spending -- less gasoline -- was also negative; down 4-tenths of a percent.
So, why did the economist's get it so wrong? Well, simply, they are ignoring other past reporting that shows that there is weak consumer spending; not only in this country but worldwide.
The first sense that international spending was on the rocks came from the China Export Report for November. By far, China is the world leader in exports. So, when the growth in exports in November comes in by half of what was expected, it says a lot about what is happening in the other world economies.
In our own country, import prices dropped. Excluding oil, imports of all other items fell by 2-tenths of a percent in November. A fact that was a repeat of the two previous months. While some of this had to do with a strengthening U.S. dollar, which makes imports less expensive to buy in this country, the drop does still indicate a slowing consumer demand.
Also, we saw a substantial drop in credit card debt in November. This too shows that the consumer is probably concerned about their financial health or job situation and not willing to splurge the savings they are seeing from falling gasoline prices.
Lastly, December unemployment showed that hourly wages fell by 5 cents. At the same time, food prices have been soaring this year. These two facts, together, are probably making the consumer quite nervous and, as a result, he or she is not willing to spend but, instead, reduce their debt or save. In either case, retail sales should have been expected to fall.
U.S. Retail Sales Reflect Consumer Caution Despite Lower Gas Prices: https://www.google.com/search?q=U.S.+Retail+Sales+Reflect+Consumer+Caution+Despite+Lower+...&ie=utf-8&oe=utf-8
China faces more pressure as Nov imports shrink unexpectedly, exports slow: http://www.reuters.com/article/2014/12/08/us-china-economy-trade-idUSKBN0JM04U20141208
List of countries by exports: http://en.wikipedia.org/wiki/List_of_countries_by_exports
Credit Card Debt Dropped Significantly in November: http://www.lowcards.com/credit-card-debt-dropped-significantly-november-29871
The "Bad" of the December Employment Report: The Average Worker Loses Purchasing Power: http://cuttingthroughthefog.blogspot.com/2015/01/the-bad-of-december-employment-report.html
Food Prices Are Soaring And Washington Doesn't Care: http://thefederalist.com/2014/07/08/food-prices-are-soaring-and-washington-doesnt-care/