Name: Here's How to Make Sense of the Economy's Conflicting Signals
Uploaded: 2016-06-02
Duration: 3 min 28 s
Description: Fortune's Aaron Task explains.

[ MUSIC ] Consumer spending is up. In April, consumer spending was up more than 1 %, the biggest monthly increase since 2009, when the Cash for Clunkers program first kicked in. That surprised a lot of people because the retail numbers that we saw in the first quarter, for companies like Macy's and Kohl's were terrible. And you had other big retailers Like Aeropostale, and Sports Authority filed for bankruptcy. So how do you explain this contradiction. First Amazon. com is now a dominate force in retailing that's not captured by US government data, and it certainly not being captured by the retailers themselves. They are losing market share to Amazon. com Second, millennials especially prefer experiences over stuff. They'll spend money on a vacation or going out to a restaurant or a bar or to a concert or going to Coachella or something like that, as opposed to going to the mall and spending their money. There. There's just a sense that we have enough stuff and we want to have fun. We want to have experiences instead. And then finally, consumers where they're spending money. They're spending money on big ticket items. Durable goods sales were up strongly in April. That's stuff like cars and refrigerators and houses. The housing market is very strong in most of this country right now. Now. Home prices are back to near- peak levels from 2006, from the peak of the housing bubble. It was a long way down and it's been a long way back. But we're almost there. That tells you that consumers are confident. They're spending money differently than they have in the past. But there's a lot of economic anxiety out there. And you're certainly seeing it on the campaign trail. Donald Trump and Bernie Sanders, particularly, are benefitting [ MUSIC ] From it, but the reality is consumers are actually in a lot better shape now then they certainly were ten years ago. Consumer debt levels have come way down. The unemployment rate is around 5 %. And wages are up they're not up a ton, but they are up one and a half percent. And disposable income which is money after taxes is up over 3 % from a year ago. So consumers aren't flush but people who have jobs are definitely feeling more confident and are more willing to spend again they're willing to spend more on big ticket items. So it's not a bull market, it's not a bear market, it's a rabbit market. That's according to Jim Paulson at Wells Capital Management. And what that means is you have a market that's running around from one place to another. It's very skittish and you could say the same thing about the economy. We've been going up in fits and starts for the last Seven years really and it doesn't seem like we're getting anywhere, but we are slowly making progress. Now I'm not a doctor and I don't play one on TV, but I think it's pretty clear that this market and this economy has a severe case of rabbititous. Everybody out there's got rabbititous. [ SCREAM ]. Well what the takeaway for investors in a market that's kind of like a cartoon. Well first of all, it's pretty clear that the old playbook isn't working. Especially when it comes to retail stocks. That's a big reason why you have some of the smartest investors in the world, the hedge fund billionaires, they've been struggling for the last couple of years. And it's a big reason why retail investors have been hesitant to put a lot of money into this market, even when it's not far from all time highs. There is no sin in playing it safe when the market doesn't seem to make a lot of sense. One thing that does make sense right here, are dividend paying stocks. And if you take a look the Dow utility index is up about 14 % year to date. It's doing a whole lot better than the NASDAQ, than the SNP 500, than the Dow industrial, and the SNP mid cap index and small cap and pretty much any other stock index you can think of. That's something that does make sense in a market and economy that doesn't make a whole lot of sense anywhere else. [ MUSIC ] [ BLANK_AUDIO ]