July Retail Sales Growth: 6.4% “Unexpected”, “Well Beyond Expectations”, “well beyond what experts predicted”…

Remember that 2016 conversation about retail inflation, Q2 wage growth, durable goods spending and non-durable goods expenditures…  Well, in a growing economy; a bigly expanding economy; with wages actually increasing as an authentic outcome of expanded hiring and jobs, jobs, jobs… in conjunction with lowered tax rates…. you get more money in your pocket.

This natural Main Street dynamic leads to increased consumer spending, specifically in the retail sectors influenced by who?… Oh, yeah, those middle-class economic beneficiaries of all the above.

The expert financial pundits are shocked, shocked I tell you… shocked; when, all of a sudden, the convergence of MAGAnomic Main Street policies delivers results.  DUH!

The Commerce Department – Economic and Statistics Administration – released the figures from July 2018 retail sales today (full pdf available here), showing an incredibly strong .5% increase in spending in July, bringing a 6.4% increase year-over-year;  and the results have dropped the jaws of the “experts”:

“Economists polled by Reuters had forecast retail sales nudging up 0.1 percent in July.” (link)

“Retail spending in the United States increased a half-percent during the month of July — well beyond what experts predicted.” (link)

“U.S. retail sales rose more than expected in July as households boosted purchases of motor vehicles and clothing, suggesting the economy remained strong” (link)

(pdf link)

With expanded jobs available; higher wages and the highest workforce in the history of the country currently; and with more U.S. workers re-entering the workforce again; and with expanded optimism and opportunity; the retail sector is a natural benefactor.

Notice the drop in the “sporting goods, hobby, etc.” sector?  Americans love to work… when you’re working, you’re earning…. when you’re earning you ain’t playing as much etc.

Retail sales growth is directly related to the middle-class.  Retail store volume is directly related to the wealth of the middle class.  Build a strong Main Street and you simultaneously build a strong, financially secure, middle-class.  It is a self-fulfilling economic prophecy; this is common sense.

Remember, two-thirds of our GDP, and the subsequent economic growth measured by GDP growth, is directly influenced by retail sales.  The more goods Americans purchase, the higher our GDP growth in the making, manufacturing, distribution and selling of those goods.   This is the Main Street growth cycle dynamic never discussed when all of the economic emphasis is on a service-driven economy (Wall Street).

BIG PICTURE – As a direct result of President Trump’s multifaceted economic strategy, manufacturing companies are having to look at TCO which is “Total Cost of Ownership”. You see, President Trump is not only approaching manufacturing growth policy from the trade-agreement and investment side, his policies also approach the larger impacts on raw material, energy and labor.

This multi-pronged policy approach forces companies to look at transportation and location costs of manufacturing. In combination with more favorable tax rates; if domestic costs of material and energy drop, in addition to drops in regulatory and compliance costs of operating the business, the total operating cost differences drop dramatically.

This means labor and transportation costs become a larger part of the consideration in “where” to manufacture. All of these costs contribute to the TCO. Transportation costs are very expensive on durable goods imported. If the durable goods are made domestically, the transportation costs per unit shipped drop significantly. The TCO analysis then further reduces to looking at labor.

U.S. Labor is more expensive, yes. However, if material costs, energy costs, regulatory costs, taxes and transportation costs are part of the TCO equation – then higher labor costs can be offset by the previously mentioned savings.

… […] Chinese wages have been rising by about 15% a year since 2000. As a result, the Chinese labor cost in dollars per unit of output is now about four times what it was in 2000. We estimate that about 25% of what is now offshored would come back if companies quantified the total cost. These products would generally have characteristics such as high freight cost vs. labor cost, frequent design changes, volatility in demand, intellectual property risk, and regulatory and compliance requirements. (link)

For two years CTH has repeatedly stated that under Trump’s proposals “total costs” drop so dramatically, that off-shored manufacturing is no longer the best play. We are seeing that shake out right now. For the first time in 30 years companies are reviewing the TCO of products and finding less and less financial reasons for off-shore manufacturing.

Their response?….  Well, we need more workers !!

Winnamins baby… moar winnamins.

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