Retail sales were up modestly in January…0.5%... driven mainly by discount retailers and on-line merchants. Consumers are hunting for bargains. The practical reason is that there is really no job growth occurring and therefore no broad gains in income. But there is also a second reason…an emotional one: consumers are very uncertain about the economy; they are not sold on the news that a recovery has taken hold and will be sustainable. And for good reason…as the recent facts and news back their doubts:
- The Greek debt woes even though European nations vow a rescue;
- The stock market has been notably fragile in the last 30 days;
- Toyota’s alleged cover up of its knowledge for almost a decade of the accelerator pedal problem obviously dents trust in our large corporations;
- Small banks in particular are still not lending even modestly.
And when you’re not sure…you don’t spend much.
In war, uncertainty gets you killed, which is what happened at Fort Hood. In the economy, it gets you little or modest spending, which is what has happened in the last couple of months. And since consumer spending accounts for two-thirds of economic activity, an uncertain or uncomfortable consumer means lackluster growth.
What is really needed to promote sustainable retail sales is a bold new move on Washington’s part: stimulus aimed directly at American households in the form of tax cuts. Not token tax cuts, significant cuts. This is the one type of fiscal stimulus that has always jump-started economic growth in the past. And it can do it again.
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