Retail Observer

RETAILOBSERVER.COM JULY 2016 32 A t my last convention speech in April, someone asked, "Why was there such weakness in the first quarter of 2016?" Here was my answer. The significant rise in our currency over the past 12 months has been extraordinary. When the Feds took the economy deeper into debt as a result of the 2008 financial crisis, my expectations were, the dollar would lose value. Contrary to consensus among economists, the dollar gained in value and is now in an even stronger position as the world's reserve currency than it was just a few years ago. This has hurt our export business and corporate profits significantly. We also miscalculated the massive, global oversupply of oil that was created by America's rise as a major power broker in the energy sector and the historic drop in oil prices. In past years, a drop in the price of a gallon of gasoline precipitated and an increase in discretionary consumption. Consumers didn't spend this windfall, they paid down debt and increased their savings. The strong dollar impacted U.S. manufacturing by slowing down the purchase of U.S. goods overseas as a result of higher prices and oil at $30 a barrel impacted job gains in America by forcing massive layoffs in the energy sector. This was in part responsible for the anemic job numbers in April. So what were our results in the first quarter and how will the year turn out? The US economy grew at an anemic 0.5% in Q1 as a result of lower than expected levels of consumer spending. It was the weakest growth in two years and follows on the heels of only 1.4% growth in the last quarter of 2015. It is very worrisome as momentum is important to our economy but it could signal just a temporary slowdown. Consumer spending rose only 1.9% in Q1 and in April, nonfarm payrolls only increased by 160,000 jobs, the lowest in seven months. While this sounds like seriously bad news, Jamie Dimon, JP Morgan CEO said this, "Looks grim, but we are convinced that the second quarter will be much better." Economists have been frustrated by the Commerce Departments inability to correctly adjust for seasonal issues over the past few years, which have consistently made Q1 look worse than expected. There is some good news, the job market has shown strong resilience in the face of slower economic growth as unemployment benefits held at a 42 year low at the end of March. In addition, we averaged employment gains of nearly 209,000 jobs per month in the first quarter of 2016 and the unemployment rate in America ticked up to 5.0% as thousands moved into the job market this quarter. This is the lowest unemployment rate among developed nations worldwide and I expect this rate to drop to 4.6% by year end. Also, disposable income increased 2.9% in Q1 and that follows a rise of 2.3% in fourth quarter of last year. Coincidentally, savings rose about 5% in the fourth quarter of last year. With a better than average increase in both wages and savings, it generally means an acceleration in consumer spending. Housing was up 15% in the first quarter, the automobile business through April is annualized at another record year and the Federal Reserve is predicting that the economy will "expand at a moderate pace in the next three quarters." Here is one last thought, American consumers have gained back all of their housing values since 2008 and have paid down $4.2 trillion in debt. A healthy consumer is a positive economic signal for the second half of 2016. So keep the faith, the American economy is outperforming nearly every country in the world and it is nowhere near as bad as you hear on television. CONCERNING SIGNALS IN THE U.S. ECONOMY WITH POSITIVE SIGNS OF STRENGTH Joe Higgins began his career with General Electric with a degree in economics. Joe left GE and joined Whirlpool as National Director of Sales. Joe retired from Whirlpool in 2012 in a career that spanned two companies and 43 years in the appliance industry. For the past two years, Joe has been speaking at conventions, seminars and sales meetings across America. His work includes presentations on the United States economy, leadership, creating a high perform-ance culture, healthy teams, and customer service. Visit www.q4qwithjoe.com. RO Joe Higgins Economic Forecast

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