RETAIL SALES INCREASE AND THE AMERICAN WAY: “LIVIN’ ON MONEY I AIN’T MADE YET…”

9/12/14

The Commerce Department reported this morning that August retail sales rose a seasonally adjusted 0.6% from July after rising 0.3% from June. 

Most of the vocal quarters of the economics profession, along with the “strategist” community on Wall Street, seem to be overcome with joy at this number.  This is further proof, we are told, that the consumer is “finally opening up his wallet.”  One wishes that these estimables could come up with something less trite, but I digress.

As is my wont, yours truly is not as enthusiastic about these developments as are his much more highly paid colleagues. 

Earlier this week, we learned that consumer credit other than mortgage debt rose at a seasonally adjusted annual rate (“SAAR”) of 9.7% in July, after growing at more “modest” SAARS of 7.1% in June and 7.3% in May.  Credit card debt, which had been being gradually whittled down since the Great Recession from which we are supposedly emerging, grew at a SAAR of 7.4%, the fastest pace since April, to $881 billion.

We also heard from Dartmouth Professor Jason Houle that more than a 1/3 of Americans in the 24-28 range category owe more than they own; i.e., they have negative net worths, or, to use a highly technical financial term, they are broke.  Much of this problem arises from student debt.

Yes, in the short run, consumer spending is good for an economy that draws nearly 70% of its sustenance from such spending.  But one begins to wonder if the increase in debt that is supporting such spending is about to drop us back into the economic soup from which we are still struggling to emerge.

I’ve said it ad nauseam in the past and I’ll say it again:

More debt is not the solution to a problem that had its genesis in too much debt.

Our politicians don’t understand that.  Perhaps this misunderstanding is in the very nature of a politician.  But perhaps the pols’ failure to grasp this seemingly common sense concept arises because they are elected by a people who themselves don’t understand that more debt is not a solution to too much debt.