Is the economy well settled on its growth trajectory? Well,
for now it seems so as the latest retail sales data released by
the U.S. Department of Commerce validates this. Renewed consumer
confidence and the festive mood were well reflected in the
November retail sales number that rose 0.7%, led by surge in auto
sales. The gain, which is the most since Jun 2013, followed a
0.6% rise witnessed in October; thus removing the cloud of
obscurity about economic growth.
However, excluding auto sales, retail sales climbed 0.4%. Auto
sales increased 1.8% in November, the highest in six months. A
recovery in the housing market, surging stock portfolios,
strengthening manufacturing sector and improving labor market
condition are playing vital roles to help the consumer confidence
move north and propelling economic recovery.
Consumer confidence is a key determinant for the economy's
health with consumer spending accounting for over two-third of
the U.S. economic activity. The preliminary data for December
released by University of Michigan and Thomson Reuters showed
that consumer-sentiment index jumped to 82.5 from November's
reading of 75.1 buoyed by improving fundamentals.
What is inspiring consumer spending is the improving job
prospects, with unemployment rate declining to a five-year low of
7% in November. Further boosting sentiment was the total non-farm
payroll data that said employment grew 203,000 in November,
higher than the consensus estimate of 182,000.
National Employment Report released by
Automatic Data Processing
) stated that the U.S. nonfarm private sector employment added
215,000 jobs, higher than the expected increase of 173,000 jobs,
and crossed 200K for the first time in 12 months.
However, the latest report from Labor Department may be
troublesome for investors that indicated initial claims for
jobless aid has risen 68,000 to 368,000. But there are more
positives prevailing in the economy to offset this. The strong
November retail sales data hints of a healthy holiday season
ahead and talks about regained consumer confidence that was
battered by higher payroll taxes, recent political tussle and the
16-day partial U.S. government shutdown.
So far this year, the broader markets have showcased signs of
a better pace of recovery and have thus infused hopes of a better
economic scenario going forward. Though this statement is
debatable, the significant recovery in the stock market is
reflected through strong gains for the broader market indices.
S&P 500 has clocked gains of roughly 21.4%, while Dow Jones
Industrial Average has advanced approximately 17.3% so far this
year. The Nasdaq Composite Index has increased 28.5%
Now with improving economic prospects, the question arises,
Federal Reserve start tapering its $85 billion monthly
stimulus program that was initiated to keep interest rates low
and boost economic growth?"
Fed Officials in the past have been hinting of gradual roll back
of the stimulus package in case the economy shows signs of
recovery. With encouraging economic numbers coming out of late,
chances of tapering look a near possibility.
Market watchers had previously anticipated that the Federal
Reserve would begin tapering its stimulus program early next
year. Such expectations were strengthened following earlier
announcements that it would reduce its bond purchases only when
certain economic indicators reached desired levels. This included
a significant decline in the unemployment rate. The nonfarm
payrolls report supports expectations that the economy has
recovered to the point where it can withstand reductions in Fed
After going through the above facts, a sense of optimism comes
in our mind. It looks like the economy is now steadily making its
way out of the woods, and we hope the arrival of Christmas will
shed consumers' apprehension and drive demand.
If everything goes well and consumer confidence further rises
with improving economy, then we could see a spur in demand with
willingness to shell out more this holiday season - bringing
cheers to retailers such as
J. C. Penney Company, Inc.
The Buckle, Inc.
Ross Stores Inc.
Wal-Mart Stores Inc.
), and others.
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