That´s my take from the euphoria that greeted the release of Retail Sales. This headline from the WSJ is typical: Economists See Bright Consumer Outlook:
Consumers are coming out of their shells and heading to the mall. What will keep shoppers spending for the rest of the year are much healthier labor markets, according to economists surveyed by The Wall Street Journal.
An upbeat consumer outlook was the consensus forecast of 66 economists, not all of whom answered every question. The average forecast sees inflation-adjusted household spending climbing 2.7% this quarter and more than 3% in the third and fourth quarters, much better than the 1.8% gain over the winter.
An early sign of the consumer rebound came Thursday with news that retail sales jumped 1.2% in May. Excluding autos, the gain was a solid 1%.
Of course, consumers have been fickle throughout the six-year-long economic expansion. They have spent strongly in one quarter only to retrench soon after.
But the forecasters think a high level of spending will be sustained this year because labor markets are strengthening. According to the average forecast, payrolls should increase at a monthly pace of 221,000 for the rest of the year, a notch above the 217,000 averaged in the first five months. The jobless rate is projected to fall to 5.1% by December from 5.5% in May.
But, the truth is that retail sales has done nothing more than follow aggregate nominal spending (NGDP) into a state of “semi depression”. As long as the Fed keeps AD growing at a ‘miserly’ rate, the “euphoria” is only a reflection of our survival instincts!