Retail sales grew a modest 0.1% in April, a bit shy of the 0.2% growth that analysts had been expecting.
These monthly consumer spending reports are central to understanding how strong our economic recovery is shaping up to be.
That's because indebted and unemployed households are having trouble finding the money to splurge on consumption. And with consumer spending traditionally making up 70% of the American economy, serious weakness in this area has meant poor sales for businesses and, consequently, high unemployment. Procter & Gamble (NYSE: PG), for example, plans to cut 5,700 jobs, 10% of its non-manufacturing workforce.
It's a vicious cycle that's normally repaired by things like low interest rates, an export or technology boom, or (in World War II) massive spending. But short-term rates are already at 0%, much of the rest of the world that would buy our stuff is in recession too, teleportation is still in beta, and state and local governments are cutting like there's no tomorrow since they're generally not allowed to run deficits.
In other words, consumer spending doesn't just matter for retailers like Wal-Mart (NYSE: WMT) and Sears (Nasdaq: SHLD), both of which have seen shaky store sales shrink in recent years. Alongside unemployment and income, it's also a decent proxy for the strength of the economic recovery and by extension the Dow (INDEX: ^DJI).
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