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Econ 101

The economy continues to improve with some real bright spots worth celebrating. Retail spending and industrial production are two of them.

According to Dr Ken Mayland of ClearView Economics, US retail sales reached an all-time high – surpassing the peak set in Nov 2007 – in December 2010. Annual retail sales rose 7.9% last year. This follows 2009’s increase of 5.5% and the drop-like-a-rock year of 2008 when sales fell 11.1%.
Non-store retailers did even better with a year-over-year gain of 15%. On-line sales continue to chip away at the market share – well over 90% – held by brick-and-mortar retailers. Stores continue to benefit from a distribution cost advantage but they cannot rest on their laurels. Retail sales through clicks will keep growing faster than sales through bricks. Retailers must make the shopping experience worth it to shoppers who can do it from their desktops and even mobile devices.
Consumers aren’t the only ones driving improved economic conditions. Industrial production ended 2010 still 5.7% below its 2007 peak but enjoyed a very respectable 5.9% rebound in output. Add the fact that many US factories dramatically improved efficiency and thereby profits, setting the stage for record-shattering profits in 2011. This will lead to some serious headway made in reducing unemployment in 2012.
Factories won’t earn those profits through price increases. Capacity utilization, according to the Wall Street Journal, climbed from 75.4% in Nov to 76.0% in December, still below the mean average of 80.6% for 1972-2009. Though raw material inflation is gathering steam – steel prices have risen 25% since Nov, cotton’s up 91% over the last year, petroleum prices are jumping – relative over-supply will constrain prices even as demand rises.
What’s all this mean? Buyers are buying, producers are producing and the economy is on track toward restored health and vitality. We can expect solid growth for 2011-12.