Retail sales gains in January could boost growth

http://www.forbes.com/feeds/ap/2010/02/12/personal-finance-specialized-consumer-services-us-economy_7353067.html


Description

Economic Terms:
1. retail- to sell in small quantities directly to the ultimate consumer
2. inventory- an itemized list of current assets
3. consumer sentiment index- Assesses consumer confidence regarding personal finances, business conditions and purchasing power based on hundreds of telephone surveys
4. Commerce Department- The U.S. Department of Commerce has a broad mandate to advance economic growth and jobs and opportunities for the American people. It has cross cutting responsibilities in the areas of trade, technology, entrepreneurship, economic development, environmental stewardship and statistical research and analysis.




Explanation

In January 2010, retail sales were better than expected. This could mean that economic growth might be stronger in the next few months. According to the Commerce Department, the economy gained a 0.5 percent growth. Economists had only expected a 0.3 percent growth. The 0.5 percent growth came mainly from general merchandise stores like Wal-Mart. The Commerce Department also noticed that consumer confidence has decreased in early February. The University of Michigan consumer sentiment index fell from 74.4 in January to 73.7 for early February. Some economic analysts believe that the unstable global economy is deteriorating confidence that the U.S can recover from the worst recession in decades.

The biggest threat to the U.S economy is the hesitation of U.S consumers to spend money. Paul Ashworth, senior U.S. economist at Capital Economics, said "We expect that lingering high unemployment, weak income growth, low confidence, tight credit conditions and the continuing need to deleverage will constrain consumption growth for at least this year and possibly well beyond." The Commerce Department noted that companies reduced their inventories by 0.2 percent in December because these companies think that consumer demand will continue to be weak. However, the economy grew at an annual rate of 5.7 percent from October through December. Economic analysts warn that growth could decline as the benefits of government stimulus money fade. The Obama administration's annual economic report to Congress predicts that an average of 95,000 new jobs per month this year will be created. This average would not provide much aid in the current unemployment rate. The Obama administration also predicts that Americans' personal savings would remain high as credit remains tight, which will result in less spending.



Analysis

Consumer spending is extremely essential for economic growth. It accounts for 70 percent of economic activity, which is why retail sales in January boosted the U.S economy by 0.5 percent.

Prediction

Because consumer spending is 70 percent of economic activity, it is important that new jobs are created. People will only spend money if they are financially stable and/or employed. If people are not employed, then they will mostly spend their money on their bills and basic necessities and not want to spend their money on extra things because they have limited stimulus funds from the government.