US consumption: more or less where it "should" be

Another day, another disappointing retail figure.  OK, it wasn't actually as bad as the March headlines would suggest; in fact, with revisions the number was more or less bang on expectations.  Still, on a more general basis it feels as if consumption has broadly undershot where we would expect it to be, particularly given the putative shot in the arm from lower oil prices.  Disposable income growth is running at a faster pace than retail sales, which generally speaking is something of an anomaly.

To some extent, there may be a wealth effect going on here.  After peaking at 14% y/y at the end of 2013, the annual growth in household wealth tumbled to just 3% y/y by the end of last year.  Given that much of last quarter was dominated by headlines of tumbling equities and negative interest rates, it is difficult to credit that consumers felt much wealthier, which could perhaps explain the sluggish spending growth.  For what it's worth, Macro Man estimates that his model will deliver the same estimate for growth in household net worth in Q1 as it did in Q4.

Combine disposable income growth that's decent but nothing special with below-average growth in household net worth, and what do you get?   Pretty much exactly what we've seen in terms of personal consumption expenditure.  (Note that the spikes in the model are are a result of special dividends and bonuses paid before the expiry of the Bush tax cuts at the end of 2012.)

So where does this leave us?  As we were, basically, plugging away at tepid growth levels that are probably not too far off of trend.  As for markets, it's true that stocks have generally done well this week; even Eurozone banks did a ripper yesterday.   Of course, a 5 billion euro fund is diddly squat to the mountain of dud loans sitting on the balance sheets of Italian banks, but if underweights got over their skis then a bit of short covering is not altogether surprising.  And sure, JPM earnings didn't totally suck, which is a positive.

But in the grand scheme of things, there's been relatively little "signal" thus far this week, and a lot of noise, likely dominated by options expiry and of course the oil summit this weekend.  There are plenty of people who trade the noise, which is fine.  But Macro Man has always been a "signal" trader who is generally content to look through the noise.  Needless to say, that's the approach that he is taking this week with respect to stocks.

Finally, as a public service announcement, the RMB did not "sharply decline" at last night's fix.  In fact, it appreciated ever so slightly against the basket.  The sharp decline has basically been the rest of this year, including the last month when no one seemed to give a hoot.   Perhaps it's a coincidence that exports put in what was basically their best month of the last year and a half...but perhaps not...