Do skyrocketing fuel prices, slumping dollar, a weak labor market and falling home values have you down? One thing that always seems to take the edge off our worries is shopping and, based on last month's results from U.S. retailers, plenty of shopping is being done. Indeed, the federal rebate checks are serving their intended purpose by boosting consumer spending in each of the last two months. Unfortunately for some retailers, the funds have not been spent everywhere. So far, the bulk of spending is showing up in discounters' registers, while department stores and upscale retailers continue to see less-than-stellar results.

To this end, an observable shift (subscription required) in consumption patterns has taken place, with consumers ‘trading down' their purchases in these uncertain times. While the appearance of a substitution effect shouldn't be unanticipated, the degree and pace at which it has occurred has been a little surprising. For example, the Ford F-150 truck lost the perch of top-selling vehicle in the U.S., a spot which it held for decades, to the Toyota Corolla.

In other news, the trade gap unexpectedly shrunk in May even as the import bill for energy soared to new heights. Although the struggling dollar is a source of concern, it has at least had the benefit of boosting exports to yet another record high. With two surprisingly-strong economic reports, real GDP growth for the second and possibly third quarter will easily be out of recession territory, leaving us fewer reasons to whine about the economy.


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