A couple of weeks ago I purchased jeans for $9.95 at Walmart. These looked much like the Levi jeans I used to purchase for much more, years ago. I was curious to see who else offered jeans this cheaply and also to verify where they were made. While I didn’t spend much time, it was clear the jeans most likely came from China and I could spend a lot more on jeans very easily.
Overnight, Asian equity markets rallied mainly on enthusiasm around China’s planned ambitious economic reforms. Import prices are down 1.3% year over year. Energy prices continue to face downward pressure with WTI now at 93.78 and gold is still struggling at 1281.50.
Should I stock up on my jeans or wait? We’ve had a long period of dollar depreciation relative to other developed countries. Most export based countries want to depreciate their currency to stimulate growth. When the Fed decides to taper, removing stimulus, this may act to strengthen the dollar. I actually like my older paint stained jeans anyway but it is hard to pass up adding to the inventory at under $10. I guess my feeling is they cannot go much lower.
While the recent economic numbers have been soft and may give reason for pause, we believe there is still core strength over the long term. First, lumber orders continue to trend higher which suggests U.S. housing starts have only briefly paused. Second, we have historically older plant and equipment numbers today. This should support Capital Expenditures in the future and we know U.S. companies are sitting on higher levels of cash. Third, lower energy prices make the U.S. more competitive. Last, inflation remains below the Fed target and is historically low, potentially keeping interest rates lower for a longer period.
What’s holding us back from record spending this holiday season? Why aren’t we consuming more than ever? We still have a large U.S. deficit. We still have higher unemployment. We don’t have sharply rising prices leading us to spend now versus spend later, especially if the dollar is going to strengthen. Further, we have already had some stimulus removed as well as sequestration cuts and taxes have increased. Thus, we seem to have counter balances holding us back from more rapid growth, as do many other countries around the globe. Otherwise, I might be tempted to purchase another pair of my favorite U.S. made Carhartt flannel lined jeans.
A few numbers to watch this week –
Tuesday – Employment Cost Index
Wednesday – Consumer Price Index, Retail Sales, Existing Home Sales
Thursday – Weekly Jobless Claims, Producer Price Index
Friday – Kansas City Fed Manufacturing Index
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