Thanksgiving – Black Friday – Shop Small Saturday – Cyber Monday
The term “Cyber Monday” was coined by Ellen Davis in 2005. Davis, from Galesburg, Illinois, was Senior Vice President of the National Retail Federation. Although it doesn’t seem so long ago, in 2005 the entire US was on 3G cellular technology, which was the first generation to allow cell phones to connect to the Internet. In 2005 only about one third of adults in America had access to high speed internet at home compared to over 70% today. Additionally, the average download speed for a home user in 2005 was just 2.4 Mbps compared to 93 Mbps today, which is 39 times faster! Not surprisingly, the New York Times reported that "The name Cyber Monday grew out of the observation that millions of otherwise productive working Americans, fresh off a Thanksgiving weekend of window shopping, were returning to high-speed Internet connections at work Monday and buying what they liked."
Internet sales not slowing down
Last week, the US Census Bureau released Internet sales data for the third quarter of 2018. Not surprisingly, total e-commerce sales continue to grow at a blistering pace. Total Internet sales are up 14.5% year-over-year to $131 billion dollars per quarter or nearly 10% of all retail sales. If you subtract sales figures for the things you can’t practically buy over the Internet like gasoline, dinner or a sheet of plywood, and think about the things you CAN buy on the Internet, total e-commerce sales are really about 17% of the adjusted total.
More Americans working and incomes are rising
In the US, about 63% of adults who, in theory, could be working, actually choose to. The potential number of working Americans excludes those in the military and persons currently incarcerated. Among those 162 million Americans in the labor force, 96.3% currently have a job. Of the approximately 6 million who are unemployed, about 3.6 million, or 60%, quit their job voluntarily. Because we are becoming more of a service-based economy and less of a manufacturing-based economy, wages have not grown as much during this economic expansion as in other post-recession times. Nonetheless, real per capita disposable income has grown 15.5% over the last decade from roughly $38,000 per year in 2008 to $44,000 in 2018.
Stock market within 0.1% of turning positive again for 2018. We think it will.
We think the meeting between President Trump and General Secretary Xi Jinping of China at the G20 summit will go much like other meetings Trump has had with world leaders. The tone of the meeting will be generally positive after which there will be an optimistic and encouraging tweet that lacks any specifics. The tariff issue will not be resolved, but further escalation will be put on hold pending further negotiations. Unfortunately, China has not really made any effort whatsoever to fix or resolve the Administration’s concerns about intellectual property theft that have triggered the tariffs on some $250 billion of Chinese exports. Without any concession from China, the next round of tariffs will go live in January or February of next year. The Chinese have much more to lose from a protracted trade war than the US.
Minutes from The Federal Reserve Open Market Committee November meeting will be released Thursday afternoon. Don’t expect the Fed to back off a December rate increase, but do expect to see more language regarding future rate hikes being “data dependent.” This may give the Fed cover to slow the pace of rate hikes in 2019 if the economy starts to slow.
Bottom line: Consumers are in great shape with more money to spend. Although they don’t want to, the Chinese may make some concessions to avoid further damage to their own slowing economy. The Fed may back off the pace of rate hikes in 2019. The stock market sell-off is overdone and the rush to dump cyclicals and rotate into defensives was too early. One of the reasons was that cyclicals are where all the profits were, so they were a logical sell candidate. Simply put, the data does not support a protracted stock market sell-off at this time. Look for a positive end to 2018 and very modest gains in 2019.
Consumer sentiment softens, but expectations remain high
- Consumer sentiment dropped slightly in November to 97.5 putting the index near August levels and 3.6 points below the high in September.
- Respondents noted declining confidence in current economic conditions and no doubt the 8% decline in stock prices were top of mind for consumers.
- Expectations for the economy are holding a bit firmer. (See Index of Consumer Expectations graphic.)
- Consumer spending is on track for 5% year over year growth.
Leading Economic Indicators suggest growth will continue
- The Conference Board reported that the Leading Economic Index for October grew 0.1% to 112.1 after a 0.6% gain in September.
- Five of the ten components that make up the index increased or improved, led by consumer expectations for business conditions and the interest rate spread.
- Three components were negative led by stock prices, unemployment claims and building permits.
- Weekly hours worked in manufacturing were unchanged as were new orders for consumer goods.
- Despite near term weakness in financial indicators, the overall index remains healthy and suggests continued economic growth in the months ahead.
Chicago Fed National Activity Index (CFNAI) shows strong economic fundamentals
- The CFNAI is a weighted average of 85 indicators of economic activity. A value of zero indicates the economy is growing at its long-term trend rate. Positive values indicate growth is above trend and negative values indicate below trend growth for the US economy.
- The pace of economic growth in the US increased in October. The CFNAI increased to 0.24 from 0.14 in September.
- The monthly values can be somewhat volatile as indicated by the Activity Index graphic A better measure is the three-month moving average which has been fairly stable since August.
- The employment component was exceptionally strong, manufacturing moved higher and sales were unchanged from the previous month, but still positive.
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