Monday, 24 of September of 2018

Economics. Explained.  

Category » Consumer

Consumer Net Worth

September 21, 2017

Consumer net worth rose $2.2 trillion in the second quarter.  That works out to an annualized rate of increase of 8.4%.  Over the past year consumer net worth has increased 8.2%.

The growth in net worth reflects both the steady increase in stock prices during the course of the past several years, and the growth in home prices.

This high and climbing level of  net worth should encourage consumers to spend at  roughly a 2.5% pace in both 2018 and 2019.

Stephen Slifer

NumberNomics

Charleston, SC


Consumer Sentiment

September 14, 2018

The final estimate for consumer sentiment for September jumped 4.6 points to 100.8 after having declined 1.7 points in July.   The September level was 0.6 point lower than March’s level of 101.4 was the highest level of sentiment since January 2004.  Thus, sentiment remains at a very lofty level.

Richard Curtin, the chief economist for the Surveys of Consumers, said, “Consumer sentiment posted a robust rise in early September, reaching 100.8, the second highest level since 2004-only behind the March 2018 reading of 101.4. Importantly, the gains were widespread across all major socioeconomic subgroups. The Expectations Index reached its highest level since July 2004, largely due to more favorable prospects for jobs and incomes. Despite a lessening of expected gains in nominal incomes in September, inflation expectations also declined, acting to offset concerns about declining living standards. Consumers anticipated continued growth in the economy that would produce more jobs and an even lower unemployment rate during the year ahead. While consumers were somewhat more likely to anticipate that the economic expansion would continue uninterrupted over the next five years, nearly as many expected another downturn sometime in the next five years. The largest problem cited on the economic horizon involved the anticipated negative impact from tariffs.”

Given the tax cuts we expect GDP growth to climb from 2.5% in 2017 to 3.1% in 2018.  We expect the economic speed limit to be raised from 1.8% to 2.8% within a few years.  That will accelerate growth in our standard of living.  We expect worker compensation to increase 3.5% in 2018 vs. 1.8% last year. The core inflation rate (excluding the volatile food and energy components) rose 1.8% in 2017 but should climb by 2.3% in 2018.  Such a scenario would keep the Fed on track for the very gradual increases in interest rates that it has noted previously.  Specifically, we expect the funds rate to be 2.2% by the end of 2018.

The August increase was attributable to both the expectations and current conditions components.

Consumer expectations for six months jumped 4.0 points from  87.1 to 91.1.

Consumers’ assessment of current conditions jumped 5.8 points from 110.3 to 116.1.

Trends in the Conference Board measure of consumer confidence and the University of Michigan series on sentiment move in tandem, but there are often month-to-month fluctuations.  Both series remain at levels that are consistent with steady growth in consumer spending at a reasonable clip of about 2.5% in 2018.

Stephen Slifer

NumberNomics

Charleston, SC


Consumer Debt Service Ratio

August 30, 2018

Consumers debt service payments relative to their income were essentially unchanged in the third quarter at 10.2%.  This debt service ratio peaked at 13.2% of income in the fourth quarter of 2007, and it fell rapidly for the next give years and eventually dipped to the 10.0% mark which is the lowest on record for a series that stretches back to 1980 — 38 years ago!  It has been relatively steady at about 10.2% for the past two years.

The household debt service ratio is an estimate of the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt.

The financial obligations ratio is a somewhat broader concept and adds automobile lease payments, rental payments on tenant-occupied property, homeowners’ insurance, and property tax payments to the debt service ratio.  The picture looks much the same although the recent upturn is somewhat more pronounced.  It briefly fell to  15.0% in Q4 2012  and is now at 15.8% which is still well below its historical average of 16.6%.

Any way one slices it consumer debt is  at a very comfortable level and there is plenty of room for consumers to take on additional debt if they so choose.

Stephen Slifer

NumberNomics

Charleston, SC


Personal Income and Consumption Expenditures — Monthly

August 30, 2018

Personal consumption expenditures rose 0.2% in July after having risen 0.3% in June.   Over the past year they have risen a solid 2.9%.    What we are really interested in is consumption spending in real terms (i.e., after adjustment for inflation) because that is what goes into GDP (shown above).    On that basis consumption spending rose 0.2% in July after having risen 0.3% in June.  Real consumer spending has risen 2.8% in the past year.  Because consumer spending is so volatile on a month-to-month basis, we find it helpful to look at a 3-month moving average which is what is shown above (in blue).  That 3-month increase in real PCE is now 4.0% versus 2.8% in the  past year.  Thus, consumption spending appears to be quickening.

Consumers feel great.  And why not? The stock market is doing well despite the trade fears and is at a record high level.  It should continue to trend upwards as the year progresses.  Jobs creation is robust which is bolstering income, gasoline prices remain relatively low and steady, consumers have little debt, rates will stay low for some time to come even if the Fed very gradually raises short-term interest rates, and consumers are benefiting from the cut in individual tax rates.

Personal income rose 0.3% in July after having risen 0.4% in June.  During the past year personal income has risen 4.7%.

Real disposable income, which is what is left after adjusting for inflation and taxes, rose 0.2% in July after having risen 0.3% in June.  As a result real disposable income, which is what is left after inflation and taxes, has risen 2.9% in the past year compared to its long-term average growth rate of 2.7%.

Real disposable income per capita is generally regarded as the best measure of our standard of living.  It is currently rising at a 2.2% pace which is above its 1.6% average increase in the past 25 years.  It should reach a 2.5% year-over-year increase by yearend.

People seem to have an impression that hourly wages are stagnant.  That is inaccurate.  They grew fairly slowly at about a 2.0% pace for a while, but hourly earnings have been steadily accelerating and are currently rising at about a 2.7% pace but it bounces around from month to month.  Furthermore, as workers retire a very high wage-earning worker is replaced by someone who earns considerably less, which biases average  hourly earnings downward.  The Atlanta Fed has a series which presumably eliminates this downward bias.  It is rising at a solid 3.2% pace.  The bottom line is that, income is growing at a respectable pace.  If hourly earnings continue to climb, personal income will grow faster as well.

The savings rate edged lower by 0.1% in July to 6.7%.  It is significantly above its long-term average of 6.0%.  With income rising quickly, the consumer is feeling good and is able to save more than he or she has saved historically.

Stephen Slifer

NumberNomics

Charleston, SC


Consumer Confidence

August 29, 2018

The Conference Board reported that consumer confidence jumped 5.5 points in August to 133.4 which is the highest level of confidence since October 2000 which came in at 135.8.

Lynn Franco, Director of Economic Indicators at the Conference Board said,  “Consumers’ assessment of current business and labor market conditions improved further. Expectations, which had declined in June and July, bounced back in August and continue to suggest solid economic growth for the remainder of 2018. Overall, these historically high confidence levels should continue to support healthy consumer spending in the near-term.”

Confidence data reported by the Conference Board are roughly matched by the University of Michigan’s series on consumer sentiment.   As shown in the chart below, trends in the two series are identical but there can be month-to-month deviations.   In this particular case, the University of Michigan survey fell 2.6 points in August while the Conference Board measure jumped 5.5 points.  Truth is probably some place in the middle.  Any way you slice it, confidence remains at levels not seen since the early 2000’s.

The consumer should continue to provide support for overall GDP growth in 2018.  The S&P 500 stock market index, the Russell 2000 and the NASDAQ Composite are all at essentially record high levels.  Home prices continue to climb.  Consumer net worth is at a record high level and rising.  Jobs are rising by about 190 thousand per month.  The unemployment rate is falling slowly. The consumer has little debt.  Interest rates remain low.  In addition, consumers will get a cut in income tax rates in 2018.  Clearly, the consumer’s optimism is valid.

We anticipate GDP growth of 3.1% in 2018.

Stephen Slifer

NumberNomics

Charleston, SC


Consumer Loans

August 27, 2018

Consumer loans rose 1.3% in July after having risen 4.7% in June(the purple bars).  Over the course of the past year consumer loans have climbed by 6.8% (in red).

Led by a pickup in both consumer lending activity and more rapid growth in commercial and industrial loans, total loan growth during the past year such loans has climbed 4.9%. That is a respectable pace without being excessive.

Stephen Slifer

NumberNomics

Charleston, SC