Tuesday, 22 of January of 2019

Economics. Explained.  

Category » Consumer

Consumer Sentiment

January 18, 2019

The final reading for consumer sentiment for January fell 7.6 points to 90.7 versus 98.3 in December.  After peaking in March at 101.4 sentiment has gradually declined.  However, at 90.7 sentiment remains at a very lofty level.

Richard Curtin, the chief economist for the Surveys of Consumers, said, “The loss was due to a host of issues including the partial government shutdown, the impact of tariffs, instabilities in financial markets, the global slowdown, and the lack of clarity about monetary policies.”  Curtin added, “iI does not yet indicate the start of a sustained downturn in economic activity. It is the strength in personal finances that will continue to support consumption expenditures at favorable levels in 2019. Nonetheless, consumers now sense a need to buttress their precautionary savings, which is typically done by reducing their discretionary spending.”

His statements are true, but only if the factors he notes remain negative.  Since the beginning of the year the stock market has rallied sharply.  The U.S. and China seem somewhat close to a trade deal.  Mortgage rates have dropped from 5.0% to 4.5%.  The Fed has said it intends to leave rates unchanged through midyear.   Our sense is that in the months ahead consumer sentiment will rebound as these issues are resolved.

We expect GDP growth of 2.8% in 2019 versus 3.1% last year.  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 3.7% in 2019 vs. 2.6% this year. The core inflation rate (excluding the volatile food and energy components) should climb by 2.2% in 2018 and 2.3% in 2019.  Such a scenario would keep the Fed on track for no rate hikes through the middle of year and only a couple of increases thereafter.  Specifically, we expect the funds rate to rise 0.5% or so from 2.4% at the end of 2018 to 3.0% by the end of this year.

The modest September decline was attributable to the expectations component.

Consumer expectations for six months from now fell from 87.0 to 78.3.

Consumers’ assessment of current conditions declined from 116.1 to 110.0.

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 2019.

Stephen Slifer


Charleston, SC

Consumer Confidence

December 27, 2018

The Conference Board reported that consumer confidence fell 8.3 points in December to 128.1 after having fallen 1.5 points in November.  This series reached a high for the cycle of 137.9 in November which, in turn, was the highest level of confidence since September 2000 when it came in at 142.5.  The stock market decline in recent months has caused this index to decline only slightly.

Lynn Franco, Director of Economic Indicators at the Conference Board said,  “Expectations regarding job prospects and business conditions weakened, but still suggest that the economy will continue expanding at a solid pace in the short-term. While consumers are ending 2018 on a strong note, back-to-back declines in expectations are reflective of an increasing concern that the pace of economic growth will begin moderating in the first half of 2019.”

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, and both remain at very lofty levels.

The consumer should continue to provide support for overall GDP growth in 2018.  The stock market has been struggling for several months but should resume its upswing after the beginning of the year because the economic fundamentals remain solid.  The economy continues to crank out 190 thousand jobs per month.  Consumer debt in relation to income remains low.  Interest rates remain low even though the Fed is gradually raising short-term interest rates.

We anticipate GDP growth of 3.1% in 2018 and 2.8% in 2019.

Stephen Slifer


Charleston, SC

Consumer Loans

December 3, 2018

Consumer loans rose 4.6% in October after having risen 1.3% in September (the purple bars).  Over the course of the past year consumer loans have climbed by 5.5% (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 4.4%. That is a respectable pace without being excessive.

Stephen Slifer


Charleston, SC

Consumer Debt Service Ratio

November 30, 2018

Consumers debt service payments relative to their income were essentially unchanged in the third quarter at 9.8%.  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 9.8% which is the lowest on record for a series that stretches back to 1980 — 38 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.  It fell to  15.0% in Q4 2012  and is now at 15.3% 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

Personal Income and Consumption Expenditures — Monthly

November 29, 2018

Personal consumption expenditures rose 0.4% in November after having climbed by 0.8% in October.   Over the past year they have risen a solid 4.7%.    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 November after having risen 0.6% in October..  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 3.6% versus 2.8% in the  past year.  Thus, consumption spending seems to be holding up well.

Consumers feel great.  And why not? The stock market is having a tough time at the moment, but should continue to trend upwards as we move into the new year.  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 0.2% in November after having gained 0.5% in October.  During the past year personal income has risen 4.2%.

Real disposable income, which is what is left after adjusting for inflation and taxes, rose 0.2% in November after having climbed 0.3% in October.  As a result real disposable income has risen 2.8% 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 2.1% pace which is above its 1.6% average increase in the past 25 years.

The savings rate fell 0.1% in October to 6.0% which is slightly exactly equal to 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