Wednesday, 22 of May of 2019

Economics. Explained.  

Category » Consumer

Consumer Sentiment

May 17, 2019

Consumer sentiment for May jumped 5.2 points to 102.4 after having declined 1.2 points in April.  This is the highest level of sentiment since January 2004 when it was 103.8.

Richard Curtin, the chief economist for the Surveys of Consumers, said, “All of the May gain was in the Expectations Index, which also rose to its highest level since 2004, while the Current Conditions Index was virtually unchanged and well below the cyclical peak set in March 2018. Consumers viewed prospects for the overall economy much more favorably, with the economic outlook for the near and longer term reaching their highest levels since 2004. The gains were recorded mostly before the trade negotiations with China collapsed and China responded with their own tariffs.”  He added that, “Even apart from the direct impact of tariffs on prices, rising tariffs could cause a more general loss of confidence which could further diminish the pace of consumer spending.”

Our sense is confidence will maintain a lofty level in the months ahead.  Since the beginning of the year the stock market recovered all of what it lost in the fourth quarter, hit a new record high level, and is currently just 2% below that new record high level.  The Fed has said it intends to leave rates unchanged for the foreseeable future.   And mortgage rates have fallen from 4.9% to 4.1%.

We expect GDP growth of 2.7% in 2019 versus 3.0% 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% last year. The core inflation rate (excluding the volatile food and energy components) should be steady at 2.1% in 2019.  Such a scenario would keep the Fed on track for no rate hikes through the end of the year and perhaps for  2020 as well.

The big jump in consumer sentiment in May was entirely attributable to the expectations component.

Consumer expectations for six months from now jumped from 87.4 to 96.0.

Consumers’ assessment of current conditions edged upwards from 112.3 to 112.4.

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

April 30, 2019

The Conference Board reported that consumer confidence jumped 5.2 points in April to 129.4 after falling 7.2 points in March.  This series reached a high of 137.9 in October.  It is somewhat lower than that currently, but its level remains solid and is roughly in line with where it was for most of last year.

Lynn Franco, Director of Economic Indicators at the Conference Board said,  “Overall, consumers expect the economy to continue growing at a solid pace into the summer months. These strong confidence levels should continue to support 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.  Both series remain at very lofty levels.

The consumer should continue to provide support for overall GDP growth in 2019.  The stock market struggled for several months late last year but has rebounded and reached a new record high level.   The economy continues to crank out 190 thousand jobs per month.  Consumer debt in relation to income remains low.  Interest rates remain low and the Fed has now ceased its series of rate hikes..

We anticipate GDP growth of 2.7% in 2019 after having risen 3.0% last year.

Stephen Slifer


Charleston, SC

Personal Income and Consumption Expenditures — Monthly

April 29, 2019

Personal consumption expenditures jumped 0.9% in March after having risen 0.3% in January and 0.1% in February.   The softness in spending late last year and in the early part of this year was obviously attributable to the sharp decline in stock prices followed by the prolonged government shutdown.  But the stock market has since recovered all of what it lost in the fourth quarter and the government shutdown has now ended.

Consumer sentiment took a hit during those two months but has since rebounded and is at a level that seems consistent with a 2.5% pace of consumer spending this year.

Meanwhile, the economy continues to generate about 190 thousand new  jobs per  month which is what generates the income necessary to boost our pace of spending.  If employment grows, income will grow, and consumer spending will continue to climb.

Clearly, spending will remain solid in the months ahead.  Over the past year consumer expenditures have risen a solid 4.4%.    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 0.7% in March after having risen 0.4% in January and been unchanged in February.  Real consumer spending has risen 2.9% in the past year.

Consumers feel great.  And why not? The stock market is has fully recovered from its precipitous decline in the fourth quarter.  Jobs creation is robust which is bolstering income.  Consumers have little debt, rates will stay low for some time to come, and consumers continue to benefit from the cut in individual tax rates.

Personal income rose 0.1% in March after having risen 0.2% in February and having declined 0.1% in January.  During the past year personal income has risen 3.8%.

Real disposable income, which is what is left after adjusting for inflation and taxes, declined 0.2% in March after having been unchanged in February and having fallen 0.2% in January.  As a result real disposable income has risen 2.3% 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 1.7% pace which is in line with its 1.6% average increase in the past 25 years.

With a small increase in income and a big jump in spending in March, the savings rate fell 0.8% in March to 6.5%.  The long-term average savings rate is 6.0%  The consumer still has plenty of ammo to boost his or her pace of spending in the months ahead.

Stephen Slifer


Charleston, SC

Consumer Loans

March 22, 2019

Consumer loans rose 8.0% in February after having risen 5.3% in January (the purple bars).  Over the course of the past year consumer loans have climbed by 5.3% (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 5.5%. That is a respectable pace without being excessive.

Stephen Slifer


Charleston, SC

Consumer Debt Service Ratio

March 18, 2019

Consumers debt service payments relative to their income were essentially unchanged in the fourth quarter at 9.9%.  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

Consumer Net Worth

March 7, 2019

Consumer net worth fell $3.7 trillion in the fourth quarter.  That works out to an annualized rate of  decline of 13.8%.  Over the past year consumer net worth has increased 0.8%.

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.

However, the 20% decline in stock prices in the fourth quarter provided the first drop in consumer net worth since the third quarter of 2011.  But because the stock market has risen sharply and recovered most of its fourth quarter loss, net worth will rebound in the first quarter and likely climb by 7.0-8.0% this year.  If that is the case, consumer spending is likely to continue at roughly a 2.5% pace.

Stephen Slifer


Charleston, SC