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Retail Sales Prove Meredith Whitney's Caution

April retail sales were worse than expected, calling into question whether the American consumer is ready to come out of hiding just yet. It's hard to argue with the rationale: until the economy improves, why spend like it's 2005?

The New York Times' Catherine Rampell announced that the Age of Parsimony has dawned in America. Yup, there's been a shift to thrift across the nation, although evidently not at the Saks shoe department, which was jam-packed last weekend. But the savings and retail sales data belies my one-off adventure with Messrs. Choo and Blahnik.

Rampell notes that "Over the last 30 years, the savings rate has fluctuated from over 14 percent in the 1970s to negative 2.7 percent in 2005." Once the housing and credit bubbles burst, the U.S. consumer machine had to take a breather. The latest reports show that the savings rate has now risen to above four percent.

Saving is the necessary remedy to replenish the out-of-whack balance sheets of ordinary Americans. But it's problematic for the nation's retailers, who need us to be buy their stuff. The "paradox of thrift" boils down to a simple problem: if everyone saves, then the economy will remain mired in a recession.

But so many of the rosy forecasts count on the resumption of consumer spending as well as a moderation of credit card write-offs by the nation's big banks. That doesn't seem like a reasonable expectation, according to the Carnac of bank analysts, Meredith Whitney. In a lengthy interview with CNBC, Whitney notes that consumers aren't going back to their profligate ways any time soon and as a result, consumer spending will be lower than what people expect. You can find that part of the interview from minutes 2:00 to 4:20 or so:

I met Whitney about five years ago when we both appeared on Fox News. We had a green room, mini-bonding moment because we both attended Brown University, but what I remember most is thinking, "this is one smart woman." Oh, sure, there are Whitney critics, but if she handles the media better than some of her competitors, that too is a skill. Who cares if you made the right call if you can't get the message out to the public?

In the end, we need as many thoughtful analysts as possible. It appears that while everyone is happy drinking in the next round of stimulus and pulling green shoots, it would be wise to heed Whitney's contrary opinion.

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