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Jeff Saut: Reports of Consumer Spending's Death Have Been Greatly Exaggerated


But habits may have changed. When folks aren't buying houses and cars, they tend to spend money on casual dining and apparel.

Total retail sales in the US in calendar year 2013 were $5.085 trillion, up +4.2% from the total in 2012. That's equal to $203.5 billion of additional retail sales in 2013 (over 2012's result), or $1 million of additional retail sales nationwide every 2½ minutes. -- The Census Bureau

"The reports of my death are greatly exaggerated." While this is actually a misquote, these words are still attributed to Mark Twain. Similarly, reports of the American consumers' "death" have been greatly exaggerated. As my father used to say, "Never underestimate the American consumers' ability to spend money, even if they don't have it!"

That mantra has stood me in good stead over the past 43 years in this business. To be sure, there are times when consumers tighten their collective belts, but personal consumption has always eventually trended higher. Recently, consumers' spending ability has been called into question once again. I continue to believe most of this is due to the wicked weather I wrote about on Monday.

However, there's a shift in spending habits that seems to be happening. When folks aren't spending on houses, cars, and other big-ticket items, they tend to spend money on casual dining, apparel, and the like. When household formations start increasing, there's a shift in consumption toward homes, washing machines, and so forth.

As can be seen in a chart found here, after a precipitous decline from 2007 to 2011, household formations are on the rise. I expect this trend to continue for years, driven by the American Industrial Renaissance, our move toward energy independence, our technology prowess, our creativity...well, you get the idea. In fact, on CNBC Tuesday, the Milken Institute's Joel Kurtzman said, "America is on the brink of enormous economic growth."

Yesterday, however, that was in doubt as the S&P 500 (INDEXSP:.INX) tried for the second session in a row to surmount its January 15, 2014, closing high of 1848.38 and again failed, causing one Wall Street wag to lament, "Three strikes and you're out!" If so, the bulls had better mount a "charge" pretty soon, because if the SPX trades below 1838, it could embolden the bears for at least a downside move to 1806. Tuesday's Upside Volume weakened from Monday's at just 42% of total Up/Down Volume. Additionally, short-term measurements of Supply (read: sellers) rose yesterday, while the Demand Indicator (read: buyers) declined. With this occurring around the previous highs, it continues to counsel for caution on a trading basis. This morning, the pre-opening futures were marginally higher on a rebound in China and a better situation in the Ukraine. Third time's a charm?
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