The Trend

The Most Important Economic Indicator

Arguably, the U.S. consumer is the most watched economic indicator.  We’re the barometers of economic growth, if you will, accounting for 70% of GDP growth.

As the fortunes of many Americans goes, so goes the economy… 

In short, what the consumer does is vital for economic growth.  If the consumer starts saving and stops spending, the economy is in trouble.

That’s what we’re seeing now, as the savings rate ticks higher to 5.5%.

Meanwhile, as consumer spending falls, we can tell with greater certainty that the health of the greater economy is stalling.  For example, according to a Bank of America debit and credit card spending report, things may be about to get significantly worse for U.S. department stores, as well as for restaurants with considerable weakness in the larger chain stores thanks to poor consumer spending.

Retailers aren’t doing hot at all either.

In fact, according to Moody’s Investors Services, 19 names in its retail and apparel portfolio now trade at Caa/Ca, which is deep into “junk” territory.  Worse, stores like JC Penney have plans to close 130 to 140 stores and offer buyouts to 6,000 workers, as the department store slows.

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On top of that, more than a dozen other retailers are very likely to shut down because of the true health of the U.S. consumer and the overall economy.  Claire’s, Payless, Nine West, Gymboree, True Religion, Bon Ton Department Stores, David’s Bridal, and even 99 Cents Only Stores are all in the crosshairs.

One look at a former retail behemoth like Target (TGT) is a clear indication of a weak consumer and an unhealthy economy, too.  Technically, TGT has been nothing short of a disaster having fallen from a high of $78 to $54 in recent weeks after noting that earnings for the first quarter and full fiscal year will be lower than what the Street is expecting.

Then, according to the Commerce Department, U.S. retail sales posted their smallest increase in six months as households cut back on auto purchases and discretionary spending – the latest indication the economy has lost momentum.  Retail sales edged up a whole 0.1% last month, the weakest reading since August 2016.

What this tells us is that U.S. consumers are not as healthy as hoped. 

Always keep an eye on the consumer for an idea of just how healthy the economy is.