May 12, 2005

WHAT HAPPENS WHEN PRICES KEEP FALLING AND YOU TELL FOLKS THERE'S INFLATION? THEY BUY:

After slow March, the economy rallies: The latest evidence is an unexpected jump in retail sales, led by stronger car buying. Discount stores are still hurting. (Ron Scherer, 5/13/05, The Christian Science Monitor)

Call it a spring spending spree.

Americans, maybe just glad to see winter behind them, are hitting the mall, going to restaurants, filling up carts at Home Depot, and buying into the bright new colors on clothing racks.

The enthusiasm in America's stores has surprised economists, who had expected high gasoline prices to mute some of American's urge to buy. Instead, the US Commerce Department reported Thursday that April retail sales rose 1.4 percent from March - the strongest showing in six months - and 4.4 percent over last year.

These numbers are considerably higher than expected and are prompting economists to declare it's more evidence the economy has turned the corner on the soft patch it hit in February and March. The retail improvement combines with the better job picture from last Friday, when the government reported 274,000 new jobs were created in April.


You have to admire the tenacity with which this economy has fought the killing hand of the Fed, but a few more rate hikes are likely to tip the battle.

Posted by Orrin Judd at May 12, 2005 7:16 PM
Comments

These Fed rate hikes aren't hurting the economy, they're helping. They were long overdue.

Posted by: pj at May 12, 2005 7:59 PM

One thing they aren't buying is stocks.

Posted by: Harry Eagar at May 12, 2005 11:43 PM

Yeah, Americans know the stock market is no place to "invest" their hard-earned dollars.

Market Meltdown

Posted by: djs at May 13, 2005 12:51 AM

1982-2000 was the greatest bull market in history. Timing is everything. The greatest danger to economic growth today is the Fed. They do tend to overshoot. The Philips Curve is a matter of faith among keynesian bureacrats within the Fed. Not a good sign.

Posted by: Tom C., Stamford, Ct. at May 13, 2005 8:06 AM

The Fed hikes are currently hurting. There is no groundswell of excess cash out there to be invested in the market yet. The real estate market is starting to soften in key parts of the country. Stocks which supply the homebuilding industry are losing ground. And consumers aren't buying durable goods in any numbers yet, hurting the big retailers.

Posted by: bart at May 13, 2005 8:54 AM

They did the same thing in 2000 when Greenspan imagined inflation.

Posted by: oj at May 13, 2005 9:37 AM

"WHAT HAPPENS WHEN PRICES KEEP FALLING AND YOU TELL FOLKS THERE'S INFLATION? THEY BUY."

So Greenspan has been warning about inflation to prop up spending. See, OJ? He really is a genius.

Posted by: Tom at May 13, 2005 9:11 PM
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