Consumer confidence in November according to the University of Michigan survey rose to an eight year high. Reflecting upon the data, one should not be surprised confidence is this high as equity and home prices are rising, gasoline is plunging and job growth is accelerating.
Perhaps most significantly the “expectation indices” rose to levels not seen since late 2006.
I must write that I place little stock in confidence surveys as they only tell us where we have been not where we are going; they are the ultimate feedback indicator.
However with this written, I think today’s confidence data suggests a robust holiday shopping season.
Speaking of retail sales, October’s retail sales in all dimensions were stronger than expected. At this juncture, the underlying strength suggests real consumption growth will be around 2.5% in the fourth quarter, up from 1.8% registered in the third quarter.
As noted in prior remarks, the decline in oil prices has transferred about 1.5% of global GDP to the oil consumer from the oil producer, a point perhaps validated in the retail sales data.
Could it be argued a combination of stronger retail sales and greater jobs growth amplified by rising housing and stock prices suggest the economy has finally have achieved “escape velocity” or that elusive inflection point where growth is sustainable?
If the holiday shopping season is a robust as some are now suggesting, I would answer yes to the escape velocity question which will than alter the monetary timetable.
Perhaps the biggest surprise of 2014 is interest rates. Most, including me, thought rates will be considerably higher by this juncture. We are all wrong.
I will reiterate I think the odds favor higher rates in the intermediate future because we are nearing escape velocity. This is not the consensus view.
But will not higher rates end the bull market? Immediate volatility will increase but as noted several times, according to Capital Economics the average return for the S & P 500 in the 21 months after the seven tighten cycles that have occurred since 1971 is 11.4%.
What happen this week? It is a busy data week as several key housing and inflation statistics are released as are numerous regional and national manufacturing indices. Additionally the Minutes from the October FOMC meeting are also published.
Commenting about Friday’s activity, all markets were relatively quiet.
Last night the foreign markets were down. London was down 0.29%, Paris down 0.43% and Frankfurt down 0.44%. Japan was down 2.96% and Hang Sang down 1.21%.
The Dow should open nominally lower as data suggested Japan feel back into a recession following the implementation of a large sales tax increase. The 10-year is up 5/32 to yield 2.30%.