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Consumer Sentiment

March 17, 2017

Consumer Sentiment

The preliminary reading for consumer sentiment for March rose 1.3 points and came in at 96.3 which is a shade below the 98.5 reading for January which is the highest level of confidence thus far in the business cycle.  But, interesting, consumers’ political affiliation has created an interesting divide between Republicans and Democrats.

Richard Curtin, the chief economist for the Surveys of Consumers, said “While current economic conditions were not affected by partisanship, this was not true for the component about future economic prospects: among Democrats, the Expectations Index at 55.3 signaled that a deep recession was imminent, while among Republicans the Index at 122.4 indicated a new era of robust economic growth was ahead.  Overall, the sentiment data has been characterized by rising optimism as well as by rising uncertainty due to the partisan divide.  Optimism promotes discretionary spending, and uncertainty makes consumers more cautious spenders. This combination will result in uneven spending gains over time and across products.”

Based in part on the expectation of major changes in policy likely to be implemented in the first six months of his regime, we expect GDP growth for 2017 to be 2.4% and 2.7% 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 4.0% in 2017 vs. 3.0% last year. The core inflation rate should climb modestly in 2017 from 2.2% in 2016 to 2.7% if productivity gains largely counter the faster growth of wages.  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 1.25% by the end of 2017 and 2.0% by the end of 2018.

The high level of  confidence was evident in both the current conditions and expectations components.

Consumer expectations for six months from now rose from 86.5 to 86.7.

Consumers’ assessment of current conditions climbed from 111.5 to a lofty level of 114.5.

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 at a reasonable clip of  about 2.5% in the quarters ahead.

Consumer Sentiment vs. Confidence

Stephen Slifer

NumberNomics

Charleston, SC


Personal Consumption Expenditures — Monthly

March 1, 2017

Personal Consumption Expenditures -- Monthly

Personal consumption expenditures rose 0.2% in January after having risen 0.5% in December.  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.    On that basis consumption spending declined 0.3% in January after having risen 0.3 in December.  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 2.5% versus 2.8% in the  past year. That is a solid and reasonably steady rate of expansion.

Consumers feel great and confidence has increased in the post-election period.  And why not? The stock market is at a record  high level.  Jobs creation is robust which is bolstering income, gasoline prices remain low, consumers have little debt, and rates will stay low for some time to come even if the Fed very gradually raises short-term interest rates, and now they will benefit from a cut in the individual tax rate.

Consumer Sentiment

Personal income rose 0.4% in January after  having risen 0.3% in December.  During the past year personal income has risen 4.0%. Real disposable income which is what is left after inflation and taxes has risen 2.0% in the past year.

Disposable Income -- Real Monthly yoy

With real disposable income climbing at a 2.0% rate and real consumption spending rising at a 2.8% pace, consumer spending should be somewhat slower in the months ahead.

Real disposable income per capita is generally regarded as the best measure of our standard of living.  It is currently rising at a 1.3% pace which is roughly in line with its 1.6% average increase in the past 25 years.  Somehow people seem to believe that because average hourly earnings has been growing slowly that our standard of living is growing much more slowly than it has in the past.  That is not really the case.

Disposable Income -- Real Per Capita

People seem to have an impression that hourly wages are stagnant.  That is inaccurate.  They may have grown fairly slowly at about a 2.0% pace for a while, but hourly earnings have been steadily accelerating and are currently rising at a 2.5% pace.  In addition, firms are paying workers in the form of incentive pay like bonuses and working them longer hours.  Thus, income is growing at a respectable pace.

Average Hourly Earnings

With  personal income rising 0.4% in January and a 0.2% increase in consumption spending  the savings rate rose 0.1%% in January to 5.5% which is in line with its long-term average of 5.5%.

Savings Rate

Stephen Slifer

NumberNomics

Charleston, SC


Consumer Confidence

February 28, 2017

Consumer Confidence

The Conference Board reported that consumer confidence rose 3.2 points in February to 114.8 after having declined 1.7 points in January.  That puts it at a 15-year high (July 2001).

Lynn Franco, Director of Economic Indicators at The Conference Board said “Consumers rated current business and labor market conditions more favorably this month than in January. Expectations improved regarding the short-term outlook for business, and to a lesser degree jobs and income prospects. Overall, consumers expect the economy to continue expanding in the months ahead.”

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.   Any way you slice it, confidence remains at a very lofty level.

Consumer Sentiment vs. Confidence

The consumer should continue to provide support for overall GDP growth in 2017.  The stock market is near a record high level.  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 are likely to get a cut in income tax rates in 2017.  Clearly, the consumer’s optimism is valid..

We anticipate GDP growth of 2.3% in 2017.

Stephen Slifer

NumberNomics

Charleston, SC


Consumer Debt Service Ratio

September 26, 2016

Consumer Debt Service

Consumers debt service payments relative to their income were essentially unchanged in the third quarter at 10.0%.  This debt service ratio peaked at 13.2% of income in the fourth quarter of 2007, and it has fallen rapidly ever since then.  The current level of the debt service ratio is essentially the lowest on record for a series that stretches back to 1980 — 36 years ago!

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.

Consumer Debt Service -- Financial Obligations Ratio

This series has averaged 16.6% over the past 30 years.  At 15.4% currently it is close to its record low level of 14.9% set in the fourth quarter of 2012.

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


Consumer Net Worth

September 16, 2016

consumer-net-worth

Consumer net worth rose $1.1 trillion in the second quarter after havin grisen $0.8 trillion in the first quarter.  That works out to an annualized rate of increase of 4.9%.  Over the past year consumer net worth has increased 3.1%.

Net worth declined sharply during the recession but has long since recovered all that was lost and is actually 30.0% higher than it was prior to the recession.  The rebound reflects, in part, the steady increase in stock prices during the course of the past 7 years and in home prices which have been climbing steadily.

This high and climbing level of  net worth should encourage consumers to spend at  roughly a 2.5% pace in the quarters ahead.

Stephen Slifer

NumberNomics

Charleston, SC


Consumer Loans

July 18, 2016

Consumer Loans -- Growth

Consumer loans jumped 13.0% in June (the purple bars).  Over the course of the past year consumer loans have climbed by 8.4%% (in red).   Banks began to loosen their purse strings for individuals slightly in mid-2012 and have become increasingly more willing to extend credit during the past couple of  years.

Indeed, since the beginning of 2014 bank lending of all types — business loans, mortgage loans, and consumer loans have all accelerated sharply.  During the past year such loans have climbed 7.8%. This pace of loan growth will stimulate economic activity in the quarters ahead.  We expect GDP growth of 2.2% in 2016.

Total Loans -- Growth

Stephen Slifer

NumberNomics

Charleston, SC late