Soaring Private Consumption in America

After increasing a mere 1.1% during the fourth quarter, private consumption in America looks set to increase sharply during the first quarter of 2006. Retail sales increased 2.3% in January compared to December, following a downwardly revised 0.4% gain in December. While some of that gain reflects inflation (retail sales numbers are expressed in nominal and not real terms) and while non-retail private consumption probably increased a lot slower, this still means likely a sharp increase in real private consumption. That in turn means that first quarter GDP growth in America will be far higher than the weak 1.1% during the first quarter.

It also means that the U.S. trade deficit will continue to soar. The unexpected gain in the Chinese trade surplus in January likely reflected the strong retail sales in America. The U.S. January trade deficit will therefore probably rise to at least $70 billion.