Thursday, 15 of November of 2018

Economics. Explained.  

Category » Consumer

Consumer Sentiment

November 9, 2018

The preliminary reading for consumer sentiment for November was 98.3 versus a final reading of 98.6 in October.  The November level was 3.1 points 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 remained virtually unchanged in early November from its October reading. Importantly, interviewing went through Wednesday night so there was a one-day overlap after the mid-term election results were known by consumers. Those few cases held expectations that were identical with the data collected earlier in the month, which is not so surprising given that the split between the House and Senate was widely anticipated.”

Given the tax cuts we expect GDP growth to climb from 2.5% in 2017 to 3.0% in 2018 and 2.9% in 2019.  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 2.2% in 2018 and 2.4% in 2019.  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 and 3.2% by the end of next year.

The modest September decline was attributable to both the expectations and current conditions components.

Consumer expectations for six months fell from 89.3 to 88.7.

Consumers’ assessment of current conditions edged upwards from 113.1 to 113.2.

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


Charleston, SC

Consumer Confidence

October 30, 2018

The Conference Board reported that consumer confidence gained 2.6 points in October to 137.9 after having risen 0.6 point in September. This is the highest level of confidence since September 2000 when it came in at 142.5.

Lynn Franco, Director of Economic Indicators at the Conference Board said,  “ “Consumers’ assessment of present-day conditions remains quite positive, primarily due to strong employment growth. The Expectations Index posted another gain in October, suggesting that consumers do not foresee the economy losing steam anytime soon. Rather, they expect the strong pace of growth to carry over into early 2019.”  In short, the consumer seems to be blowing off the 10% drop in stock prices that occurred in October.

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.

The consumer should continue to provide support for overall GDP growth in 2018.  The stock market has been struggling for a month but should resume its upswing after the election.  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 received a cut in income tax rates in 2018.  Clearly, the consumer’s optimism is valid.

We anticipate GDP growth of 3.0% in 2018 and 2.9% in 2019.

Stephen Slifer


Charleston, SC

Personal Income and Consumption Expenditures — Monthly

October 29, 2018

Personal consumption expenditures rose 0.4% in September after rising 0.5% in both July and August.   Over the past year they have risen a solid 5.0%.    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 0.3% in September after having risen 0.4% in August and 0.3% in July.  Real consumer spending has risen 3.0% 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 3.9% versus 3.0% in the  past year.  Thus, consumption spending appears to be quickening.

Consumers feel great.  And why not? The stock market is having a tough time at the moment, but should continue to trend upwards as the year progresses.  Jobs creation is robust which is bolstering income, .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 September after having risen 0.4% in  August.  During the past year personal income has risen 4.4%.

Real disposable income, which is what is left after adjusting for inflation and taxes, rose 0.1% in September after having climbed 0.2% in both July and August.  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 2.3% 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 2.8% 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 3.5% 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 fell 0.2% in September to 6.0% which exactly matches its long-term average of 6.0%.  With income rising quickly, the consumer is feeling good and is able to save at a respectable pace.

Stephen Slifer


Charleston, SC

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


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


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


Charleston, SC