Moneybeat: American spending goes ever on

MARY REICHARD, HOST: Next up on The World and Everything in It: the Monday Moneybeat.

NICK EICHER, HOST: It’s time to talk business, markets, and the economy with financial analyst and adviser David Bahnsen. He’s head of the wealth management firm The Bahnsen Group and he’s here now.

David, good morning!

DAVID BAHNSEN: Well, good morning Nick, good to be with you.

EICHER: Alright, let’s start with retail sales. I know it’s a small data point, but the March number generated lots of media. Month on month, according to the Commerce Department, it was a full percentage point down, and February retail was also down. So media headlines, just a quick sampling: “Retail sales tumble more than expected in March as consumers pull back on spending,” “Amid growing recession fears, retail sales fell sharply in March,” “Weak retail sales point to slowing U.S. economy,” “Retail sales tumble in another sign of a softening U.S. economy.” A lot of people don’t read beyond the headlines, so I’ll ask: Is retail sales a harbinger of a coming contraction?

BAHNSEN: Right. If you were reading that into it, you'd be reading too much into it. I would hope that listeners of the World and Everything in It don't read into the retail number after listening to me ramble on over the last few years about this subject. First of all, let's take it in perspective, retail sales are up 2.9% year over a year. That is not the stuff recessions are made of. Sales excluding autos are up 3.6% in the last year. Autos have cooled down a little bit. And the only reason retail sales were down in the month of March is because what people were spending at the gas station was less. And so when you have a little lower ticket at the gas station, or general merchandise store, it leads to a contraction in total retail. But when you look at overall consumer numbers, which can be measured from retail sales, but that's going to include gasoline, it can also include consumer confidence, it can include consumer sentiment, and E-commerce and all sorts of general categories. The data in this doesn't indicate anything particularly contractionary. It's cooled down for sure. I don't think it's all that robust. But the most important thing to say is that economically, there's no precedent for the American consumer cooling down unless credit cools down, which is another way of saying, and I don't think this is a positive thing. I'm saying the American consumer is going to spend money until they can't spend money. And it's always been that way. And I think it always will be. So I don't consider retail or consumer great meeting indicators. They're by definition, backward looking indicators. What I've always argued for as a better indicator where the economy will go is production, what we call the supply side of the economy.

EICHER: Speaking of production, we didn’t talk about this when the announcement came almost two weeks ago. But I did want to have you discuss the big oil production cut that Saudi Arabia announced, and the effect of that.

BAHNSEN: Yeah, we owe over a week ago, it was the subject of my dividend cafe.com. And so two weeks ago, OPEC+, which is the OPEC countries that Saudi is obviously the largest of along with Russia and Mexico, Saudi plus announced that they were going to cut production a million barrels a day, and oil prices moved up from 75 to add, they're now sitting on 81, 82. And I believe that the floor of oil will end up being in the 80s and could very well go higher from here. And that the reason is that after getting oil prices down by literally withdrawing 180 million barrels from the strategic petroleum reserves last year, the US has not begun to refill that at all. And even when oil prices dipped into the high 60s and it stayed down in the low 70s, for a while where they said they will be refilling they did not. And I think OPEC plus said fine. If you're not going to set a floor in oil prices then we will. So once again, I think you have US leadership forfeiting an opportunity to be the marginal price setter in oil and allowing other adversaries who have different geopolitical interests than we do to fill that void and I think it's an entirely avoidable but nevertheless crucial mistake.

EICHER: Alright, we’ll do listener questions next week. Be sure to get yours in if you’d like it considered.

You can reach us at feedback-at-world-and-everything-dot-com.

Written or spoken, I have a preference for spoken, given it’s radio, but either way we do look at everything that comes in, and as I say, we’re planning to get back to them next week: feedback-at-world-and-everything-dot-com.

David Bahnsen is founder, managing partner, and chief investment officer of The Bahnsen Group.

You can check out David’s writing and podcasts at Bahnsen-dot-com and his more advanced, technical stuff is at dividend-cafe-dot-com.

David, thanks, have a great week!

BAHNSEN: Great to be with you Nick.

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