U.S. consumers showed signs of strength in January, taking advantage of low oil prices to increase their spending and offering a welcome counterpoint to the gloom that has gripped investors and roiled markets since the start of the year.
Sales at retail stores and restaurants rose 0.2% in January from the prior month, the Commerce Department said Friday. And December’s retail sales were revised to a 0.2% gain instead of a drop, showing a better end to the year than initially estimated.
While that is good news for everyone, if only because of the implied wealth effect, it ought to give Keynesians special cheer. And from another WSJ piece:
The sharp drop this year in consumer-focused stocks is feeding fears of a recession, but those companies’ bonds are sending a more upbeat signal.
Bonds from companies such as retailers and restaurants, which are most closely tied to consumer-spending habits, have been strong performers this year, contrary to what analysts would expect if the economy were headed into a tailspin.
The disconnect is notable, because many investors view the bond markets as a more sober indicator of corporate financial health and economic conditions than stock markets.
A risk-based business cycle results when investors (and others) perceive an increase in the risk premium, and pull back their commitments accordingly. Here are previous MR posts on risk-based business cycle theory.