Last week, Washington actually helped Wall Street. Investors cheered the extension of the debt ceiling and market friendly comments from new Fed Chair Janet Yellen indicating that the central bank would continue its current policies.
But it’s not time yet to pop open the champagne and celebrate a full U.S. recovery. As I write in my new weekly commentary, while the improving tone in Washington supported stocks and other risky assets last week, it overshadowed the release of some relatively disappointing economic numbers.
In general, economic numbers have been soft year-to-date, and reports surrounding consumption and retail spending have been particularly weak. Last week’s economic numbers, which markets largely ignored, provided more evidence that the U.S. economy remains in an environment eerily similar to the last few years – one characterized by easy money, low inflation, but still only modest economic growth. In other words, even with benign monetary policy and less accident-prone fiscal policy, the U.S. recovery remains somewhat soft.
The latest disappointing economic news came once again from the consumer in the form of January’s retail sales figures, which showed a weaker-than-expected 0.4% monthly drop, and to make matters worse, December’s reading was revised down. On a year-over-year basis, adjusted retail sales are now up 2.6%, the slowest pace since late 2009.
At first glance, the deceleration in spending looks strange given the strong housing market and record level of household wealth. While some of the weakness in 2014 economic data is clearly weather related, the main culprit behind recent disappointing sales data is the utter lack of real-income growth. Disposable income is rising at just above a 2% annual rate, a three-year low and a pace that is barely keeping up with inflation.