Monday, 25 of March of 2019

Economics. Explained.  

Category » Consumer

Consumer Sentiment

March 15, 2019

The final estimate of consumer sentiment for March jumped 4.0 points to 97.8 after having risen 2.6 points in February.  The peak for sentiment was in September of last year which came in at 100.1.  The March level is clearly close.

Richard Curtin, the chief economist for the Surveys of Consumers, said, “All income groups voiced more positive prospects for growth in the overall economy during the year ahead.”   He added that, “The data indicate that real consumption will grow by 2.6% in 2019 and that the expansion will set a new record length by mid year.”

Our sense is confidence will continue to climb . in the months ahead.  Since the beginning of the year the stock market has recovered almost all of what it lost in the fourth quarter.  The Fed has said it intends to leave rates unchanged for the foreseeable future.   The government shutdown has ended.  And mortgage rates have fallen from 4.9% to 4.4%.

We expect GDP growth of 2.6% 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% last year. The core inflation rate (excluding the volatile food and energy components) should climb from 2.2% in 2018 to 2.3% in 2019.  Such a scenario would keep the Fed on track for no rate hikes at least through the middle of year and perhaps longer.

The February rebound was attributable to a moderate increase in both the current conditions and expectations components.

Consumer expectations for six months from now rose from 84.4 to 89.2.

Consumers’ assessment of current conditions climbed from 108.5 to 111.2.

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 2019.

Stephen Slifer


Charleston, SC

Personal Income and Consumption Expenditures — Monthly

March 1, 2019

Personal consumption expenditures fell 0.5% in December after having risen 0.6% in November.   However, this sharp decline it occurred in December when the stock market was in the midst of a 20% correction.  It has since recovered about 3/4 of what it lost in the fourth quarter and the shutdown has now ended.  Clearly, spending will rebound in the months ahead.  Over the past year consumer expenditures have risen a solid 4.0%.    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 fell 0.6% in December after having risen 0.5% in November.  Real consumer spending has risen 2.2% 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 2.8% versus 2.2% in the  past year.  Thus, consumption spending seems to be holding up well despite the December drop which will almost certainly be reversed in the months ahead.

Consumers feel great.  And why not? The stock market is has largely 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 fell 0.1% in January after having risen 1.0% in December.  During the past year personal income has risen 4.2%.

Real disposable income, which is what is left after adjusting for inflation and taxes, jumped 1.0% in December after having risen 0.2% in November.  As a result real disposable income has risen 3.9% 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 2.8% pace which is well above its 1.6% average increase in the past 25 years.

With a big jump in income and a modest drop in spending in December, the savings rate jumped 1.5% in December to 7.6% which is far above its long-term average of 6.0%.  It will not stay there for long as consumer spending rebounds in the months ahead.

Stephen Slifer


Charleston, SC

Consumer Confidence

February 26, 2019

The Conference Board reported that consumer confidence jumped 9.7 points in February to 131.4 after having declined 4.9 points in January.  This series reached a high of 137.9 in October but stock market volatility and the government shutdown dented consumers confidence for several months but it now appears to be back on track.

Lynn Franco, Director of Economic Indicators at the Conference Board said, “Consumer Confidence rebounded in February, following three months of consecutive declines.  The Present Situation Index improved, as consumers continue to view both business and labor market conditions favorably. Expectations, which had been negatively impacted in recent months by financial market volatility and the government shutdown, recovered in February. Looking ahead, consumers expect the economy to continue expanding.”

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 struggled for several months late last year but has recovered almost all of its previous loss.  Because the economic fundamentals remain solid we expect the stock market to reach a new high, probably by midyear.  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 2.7% in 2019 after having risen 3.1% last year.

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

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