Monday, November 15, 2010

Wells Fargo Economic Group Predicts Strong Holiday Retail Sales

Today the Wells Fargo Economic Group predicted a stronger than expected holiday retail season in the United States. They wrote, "Roughly a year and a half into the recovery, the unemployment rate remains elevated, the housing market has yet to heal and the Federal Reserve has kept the Federal Funds rate near zero, even as it continues its attempt to prime the pump with quantitative easing. So far, economic growth has yet to gain the sort of substantial momentum that makes a recovery self-sustaining. Against that gloomy backdrop, you might do a double-take when you see that we are forecasting a 5.0 percent year-over-year increase in holiday sales. If realized, it would be the biggest annual increase in holiday sales since 2005."

Source: Wells Fargo

Dr. David Krause, AIM program director commented, "Like Wells Fargo, I have also been quite optimistic about the upcoming holiday season. Even though the U.S.  unemployment rate remains high, I believe that the 90+% of the Americans who have a job are more confident that they will keep their job and will turn out to buy more this holiday season. With the growth in private sector jobs the past six months, I think that Wells Fargo's modest growth estimate of a 5% increase in retail sales is reasonable."

He continued, "For much of 2010, personal income has been growing.  Additionally, the number of hours worked per employee has been growing since last year at this time. All-in-all, I think that the U.S. consumer will come around this holiday season - even if consumer credit is tighter than it was prior to the financial crisis of 2008.  I believe the higher than expected holiday retail sales will generate increased factory orders since the current inventory-to-sales ratio is at a historically low level. This is part of the reason I'm optimistic that 2011 will be above 3% in GDP growth. And maybe QE2 isn't needed in as full a dose as the Federal Reserve is planning."

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