As the stock markets reach new highs, I see more and more optimism brewing in the U.S. economy. Let’s get this straight; the rising of key stock indices close to new historical highs doesn’t mean there is economic growth in the country. Problems with the U.S. economy persist. Consumer spending , one of the main indicators of economic growth I follow, just isn’t there. I have repeatedly said in these pages that consumer spending is the backbone of economic growth in the U.S. as consumer spending makes up more than two-thirds of U.S. gross domestic product (GDP). Please take a look at this chart: This chart represents the difference in real personal expenditure quarter-over-quarter in the U.S. economy since first quarter of 2010. It’s interesting to note that the trend of consumer spending is sloping downward. Consumer spending increased $92.0 billion from the third quarter to fourth quarter of 2010. In the same period in 2012, it only increased by $51.8 billion. According to a study by Interest.com, median income families in only one major city (Washington) in the U.S. economy can afford to buy a typical new vehicle. (Source: CNBC, February 27, 2013.) The average car cost was considered to be $30,500 in 2012. And retailers in the U.S. economy, highly affected by fluctuations in consumer spending, are feeling the pressure. Sears Holdings Corporation (NASDAQ/SHLD) reported a loss in its fourth quarter of 2012. The company’s revenues fell 1.5% in the fourth quarter, and have been falling for six consecutive years. (Source: Bloomberg, February 28, 2013.) Sears is not the only retailer hurt due to weaker consumer spending. Wal-Mart Stores, Inc (NYSE/WMT), known for its low prices, is struggling to bring shoppers into its stores as well. Sales for the retail giant only increased by one percent in the fourth quarter, well bellow analysts’ forecasts. (Source: Bloomberg, February 28, 2013.) Sales for J. C. Penney Company, Inc (NYSE/JCP) also fell in the last quarter of 2012. The company reported comparable sales fell 31.7% in the fourth quarter, much more than analysts’ expectations (Source: Reuters, February 27, 2013.) Remember, the last quarter of the year is often the best period of the year for retailers because of the holiday season. If retail sales go down during the holiday season, it’s not a bright picture for consumer spending in the U.S. economy. Clearly, consumer spending and the stock markets are painting two very different pictures of the U.S economy. Bleak consumer spending is obviously a problem for the U.S. economy. As the stock markets reach new highs, I worry, because stocks are going higher on hopes, not fundamentals. Michael’s Personal Notes The health of the Chinese economy ... Read More