Tuesday, 16 of July of 2019

Economics. Explained.  

Category » Consumer

Consumer Sentiment

June 28, 2019

The final estimate of consumer sentiment for June came in at 98.2 compared to a preliminary estimate of  97.9 and a May level of 100.0 .  Thus, sentiment fell 1.8 points in June.  Despite the modest decline in June sentiment remains at a very lofty level.

Richard Curtin, the chief economist for the Surveys of Consumers, said, “Consumer sentiment reversed the May gain due to tariffs as well as slowing gains in employment. Some of the decline was due to expected tariffs on Mexican imports but most of the concern was with the 25% tariffs on nearly half of all Chinese imports.”

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 1% below that new record high level.  The Fed has said it intends to leave rates unchanged for the foreseeable future or may even lower them.   And mortgage rates have fallen from 4.9% to 3.8%.

We expect GDP growth of 2.6% 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 PCE inflation rate (excluding the volatile food and energy components) should be steady at 1.9% 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 June was entirely attributable to the current conditions component.

Consumer expectations for six months from now fell from 93.5 to 89.3

Consumers’ assessment of current conditions climbed from 110.0 to 111.9.

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

NumberNomics

Charleston, SC


Personal Income and Consumption Expenditures — Monthly

June 28, 2019

Personal consumption expenditures rose 0.4% in May after having risen 0.6% in April and 1.0% in March.   Consumer spending now seems back in track following the softness in spending late last year and in the early part of this year  attributable to the sharp decline in stock prices followed by the prolonged government shutdown.  The stock market recovered all of what it lost in the fourth quarter and remains close to its new record high level.  Over the course of the past year consumer spending has risen 4.2%.

Consumer sentiment is at a 15-year high level that is consistent with a 2.5% pace of consumer spending this year.

Meanwhile, the economy continues to generate about 180 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 4.2%.    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 0.2% in May after having risen 0.2% in April and 1.0% in March .  Real consumer spending has risen 2.7% 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 0.5% in both April and May after having climbed 0.1% in March.  During the past year personal income has risen 4.1%.

Real disposable income, which is what is left after adjusting for inflation and taxes, rose 0.3% in May, 0.1% in April after having declined 0.2% in March.  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 0.5% increase in income and a 0.4% gain in spending in May, the savings rate was unchanged in May at 6.1%%.  The long-term average savings rate is 6.0%  The consumer can easily maintain his or her pace of spending in the months ahead.

Stephen Slifer

NumberNomics

Charleston, SC


Consumer Confidence

June 25, 2019

The Conference Board reported that consumer confidence fell 9.8 points in June to 121.5. after having climbed 2.1 points in May and 5.0 points in April.  This series reached a cycle high of 137.9 in October which also happened to be the highest level in the  past 18 years.  While it is well below that level currently it still remains at a very lofty level.

Lynn Franco, Director of Economic Indicators at the Conference Board said, “The escalation in trade and tariff tensions earlier this month appears to have shaken consumers’ confidence.  Although the index remains at a high level, continued uncertainty could result in further volatility in the index and, at some point, could even begin to diminish consumers’ confidence in the expansion,”

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 180 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 and is even talking about the possibility of lowering rates.

We anticipate GDP growth of 2.6% in 2019 after having risen 3.0% last year.

Stephen Slifer

NumberNomics

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

NumberNomics

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

NumberNomics

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

NumberNomics

Charleston, SC