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U.S. retail sales are continuing on a strong upward path. In April, they were 0.5% higher than in March and up 7.6% year over year, according to the Census Bureau.

A figure of +5.0% or higher is considered good. If inflation comes in at a norm of +2.0%, that means real (i.e., price-adjusted) spending by the consumer sector is increasing 3.0% annually.

This lays down a solid base for overall economic activity, since purchases by households in the U.S. account for 70% of gross domestic product (GDP).

The auto sector (17% of total retail) was +11.0% year over year. While this was still an outstanding performance, it was a deceleration from nearly +19% in February.

Another notable success was achieved by non-store retailers (i.e., sales over the Internet), which in April were +13.5% year over year.

U.S. total retail spending is now 1.4% higher than it was before the recession. More significant, the slope of the actual spending curve, since its low point at the start of 2009, is every bit as steep as it was prior to the recession.

In other words, all speculation to the contrary, people are finding a way to spend money at the same rapid clip as almost always. There has been little apparent adjustment of spending patterns as would be the case if frugality had captured everyones mindset.

But higher gasoline and food prices are playing a role in altering retail spending behavior. Price changes in those two areas have been accounting for much of the increase in total retail sales. And they take away from spending on other things such as entertainment.

U.S. employment in the latest month (April) increased by 244,000 jobs. Thats a strong number. But initial jobless claims have not been dropping as rapidly as hoped for. Earlier in the year, there were many weeks with initial jobless claims of 400,000 or less. In the past two weeks, the figure first shot up to 478,000, then fell back to 434,000. Half a million is the benchmark at which the number of people newly hired only just offsets the number of individuals newly fired.

There have been some media write-ups discussing how the surfeit of foreclosed homes in the U.S. may be helping consumer spending in a surprising way. When individuals strategically walk away from home ownership because their mortgage is under water (i.e., the market value is less than the mortgage value), this frees up income to be spent in other ways.

The wisdom of this course of action, from a financial standpoint and leaving moral issues aside, can depend on state legislation. If the home is eventually sold at a discount versus the mortgage amount, the lender or mortgage insurer may have no recourse when it comes to recovering the shortfall from the original homeowner.

Canadian mortgages and the banking sector

In Canada, the tie-in between the housing sector and the financial community has provided a strong backbone for the economy. Its another economic example of a healthy symbiotic relationship.

In Canada, there is a strong incentive to keep making mortgage payments even under dire circumstances. If a potential home buyer has less than a 20% down payment for a home purchase, the bank will require that default insurance be taken out with Canada Mortgage and Housing Corporation (CMHC). The cost of the insurance is borne by the new homeowner.

If at some point the homeowner cannot make the monthly payments, the bank will foreclose and sell the house. In the event the full mortgage amount is not recovered, the insurance with CMHC will cover the difference. Then CMHC will go after the former homeowner for that outstanding amount. There are limited means of escape from ones obligations.

CMHCs presence in Canadas housing market, combined with a better balance of supply and demand as reflected in home prices, has played a role in gaining international accolades for our banking sector.

The latest confirmation of the esteem in which Canadas 20 banks are held can be found in a recent article in Bloomberg Markets magazine.

In an analysis of the worlds strongest not biggest, but strongest banks in the world, Singapore and Canada dominate the list. Singapores Oversea-Chinese Banking Corp. (OCBC) is ranked number one.

While Singapore claims three of the top six spots, Canada has five representatives in the top 20. The National Bank leads the Canadian contingent with a number 3 ranking overall.

A Swedish bank is number 2. Only three U.S. banks make the top 20.

To be considered for the ranking, a bank must to have assets of $100 billion plus. Five criteria are taken into account in assessing strength, with the ratio of Tier One capital (the most secure) to risk-weighted assets as one key measure.

As a source of pride and a mark of their conservatism, Canadian banks have traditionally had a higher capital ratio (nearly 10%) than almost anywhere else in the world. This provides them with an advantage when it comes to complying with new Basel III capital requirements.

Basel III is the international agreement on new budget-sheet yardsticks to solidify the worlds financial sector after the near meltdown in 2009. It is the international portion of financial reform that is being augmented by internal regulatory changes within a number of seriously affected nations, including the United States.

U.S. retail sales three months smoothed U.S. retail sales three months smoothed

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