Implications: If you still thought a double-dip recession was possible, the retail sales number today should put that to rest. Retail sales have increased for the second month in a row, are up 3.6% versus a year ago, and we expect to see continued sales from here. "Core" sales (which exclude autos, building materials, and gas) were up 0.7% in August (including revisions to June/July), are up 4.1% from a year ago and are at their highest level ever. Why are we confident consumer spending will continue to grow? Because incomes are rising and household debts are a becoming a much smaller drag on after-tax incomes. So far this year, "real" (inflation-adjusted) cash wages for workers are up at about a 4% annual rate, meaning workers have been able to both increase their spending and still repair their household balance sheets. Our calculations suggest that consumers' financial obligations – what we owe each month on our debts, plus other obligations such as rent and car leases – are, relative to after-tax income, below the average of the last 30 years and at the lowest level since 1995. We understand times are still tough for many, but the underlying improvement in the economy should continue to reduce the economic pain in the years ahead.
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