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Retail sales are growing nicely

Retail sales in April rose by more than expected (0.4% vs. 0.2%), and they are up at a 10.7% annualized pace in the past six months. They only have to rise by another 4%, so at the current pace we could see sales regain their previous record high by the end of this year. Sales appear to be leading the way in this recovery, and that's not surprising since the recession was largely provoked by a financial panic which drove people to suddenly hoard cash. Money was stuffed under mattresses as the world's consumers prepared for a prolonged depression. When that failed to materialize, consumers gradually began unhoarding their cash. The turnover of money has risen appreciably since last summer, confirming that the recovery has in large part been driven by spending that is making up for what was postponed in late 2008. This should continue to be the case, since this process is a virtuous cycle: the more that spending and production and employment rise (as it is now), the more consumers will be confident that the world is getting back to normal and the more cash they will pull out from under their mattresses.

Consider also that with sales almost back to their prior highs, but with total employment still very near its recent lows, businesses are seeing a tremendous pickup in productivity and profitability—sales per employee have shot skyward. Profits are the mother's milk of future growth, and this process is not yet over by any stretch. Businesses that have survived will soon have the resources and the desire to expand employment and grow. Again, a virtuous cycle that should last for a long time.

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