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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

Retail sales drop but consumer confidence rises. What gives?

Two pieces of data about the American consumer came out this morning that seem to conflict with each other. But a look behind the headlines can help resolve the confusion.

At 8:30, the Commerce Department told us that May retail sales dropped by a surprising 1.2 percent compared with April. Forecasters were expecting sales would ease back a little from April but not drop like they did.

Less than two hours later, the Reuters/University of Michigan consumer sentiment survey for early June reported that the U.S. consumer is a lot more optimistic than forecasters expected.

So, what's going on?

First, let's take a look at the survey. That's just what it is: a survey. Reuters and Michigan survey 500 households (a small but statistically legitimate sample) across the country and ask them what they think of their current conditions and what they think conditions will be like in six months. Both the current and future conditions' index numbers rose in May, which surprised me, given that last month was the worst stock market May in 40 years. But consumers on Main Street evidently feel better than traders on Wall Street. I'm no class warrior, but that's a nice change. The truth is, the markets aside, the economic news -- employment (at least government), auto sales and so forth -- have been steadily, if weakly, improving.

Now to retail sales.

Yes, sales dropped 1.2 percent from April to May. But compared with May 2009, sales were actually up 7 percent. Granted, May 2009 was a crap month, but 7 percent is still 7 percent.

Now, chop up the retail sales data from last month. It was a bad month for auto sales. (Despite what automakers reported earlier this month. Hmmm...) It was also a bad month for home-improvement stores, such as Home Depot and Lowe's. Finally, gasoline sales dropped 3.3 percent.

So if you remove these three categories from last month's numbers, overall retail sales actually rose 0.1 percent in May compared with April. That ain't a lot, but it's better than a decline.

Who is the U.S. consumer now? This June Gallup survey shows a sharp increase in spending among those making more than $90,000 per year while low- and middle-income spending remains unchanged. Also, older Americans are spending more. Possibly their kids' inheritance. Why not?

Consumer spending accounts for about 70 percent of U.S. GDP. As this is so far a jobless recovery (at least jobs created in the private sector), Americans will have to spend their way to stronger economy.

By Frank Ahrens  |  June 11, 2010; 2:26 PM ET
Categories:  Data , The Ticker  
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Next: Stocks rally in last hour, Dow turns positive for June


American know how has not gone away, but we don't seem to have new industries starting up to augment consumer spending. We need a new Microsoft or something like it. I doubt we are going to see many new industries blossom under Obama with the high level of uncertainty surrounding Government policy. If a business is not tied to union jobs, Obama has little interest in them. He would rather prop up old industries and subsidize energy alternatives than promote new, innovative industries that would create demand her and abroad. Check out Bloom Energy and then ask why the government is not doing what it can to get this company moving. This is not a concept company but a going concern with a unique energy product.

Posted by: saelij | June 11, 2010 3:12 PM | Report abuse

The confidence will last thru, umm, this coming Monday, when the crud hits the blades in New York State and it shuts down its government.

Wall St. will have to move to Teaneck, NJ as Gov Christie, a Republican, has it together.

There will be no SECURITY in NYC. No food stamps er, no, they don't use those any more. They switched to CREDIT CARDS which now WILL NOT WORK on Monday since the STATE CLEARING HOUSE will be CLOSED. So, you're going to have STARVING New Yawkers RIOTING IN THE STREETS until their bread and circuses are RESUMED.

NYC is gonna BURN if its a hot night.

Posted by: notinsc | June 11, 2010 3:24 PM | Report abuse

What do you mean, "What gives", fool?

Both measures are backwards looking. Check the UPCOMING MONTH'S consumer confidence readings for any impacts of the PAST MONTH'S economic information. DUH.

Posted by: pyellman | June 11, 2010 3:41 PM | Report abuse

Their optimism is rising because they can see the economy recovering. Their spending is dropping because they have no money.

This is the result of a stimulus package that restored the assets of wealthy corporations and lenders without a corresponding boost to the spending power of consumers. A Keynesian stimulus would have included a tax cut. This is an elite-driven, top-down stimulus, with some policy spin built in, but not a robust boost to demand. It will still work, eventually; but it's clear that the emphasis is on restoring the asset-holding class, rather than primarily just to get the economy started again.

That's what I'm seeing, anyway. Sure, things are looking up -- especially if you're rich. Not so much if you're a working stiff, but still ... better than nothing. At least it's not the Bush plan of making the rich wealthier while also tanking the larger economy (worst of both worlds). But Obama is no blue collar hero here.

Posted by: pressF1 | June 11, 2010 3:44 PM | Report abuse

.........Also, older Americans are spending more. Possibly their kids' inheritance.....

Who says its the kid's inheritance?

Good luck on that one.

Posted by: wesatch | June 11, 2010 4:15 PM | Report abuse

LOL! If you ignore these bad data everything is actually very, very rosy! And if you forget the last two years the stock market is at some all time highs!!!

Posted by: infuse | June 11, 2010 4:25 PM | Report abuse

Economists and talking heads are spending way too much time on month-to-month, year-to-year trends in quantities that are not known precisely and which are affected by wildly fluctuating prices of energy and other commodities. Better to spend less time on the horse race and more on the health of the horses.

Posted by: virtualchemist | June 11, 2010 4:29 PM | Report abuse

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