Saturday, 21 of October of 2017

Economics. Explained.  

Consumer Sentiment

October 13, 2017

Consumer sentiment for October surged 6.0 points in October after having declined 1.7 points in September.  The September drop clearly reflects a drop-off in consumer expectations following the combination of Hurricanes Harvey and Irma, but sentiment came roaring back in October to the highest level since the start of 2004!

Richard Curtin, the chief economist for the Surveys of Consumers, said “This “as good as it gets” outlook is supported by a moderation in the expected pace of growth in both personal finances and the overall economy, accompanied by a growing sense that, even with this moderation, it would still mean the continuation of good economic times.”  He added that “The data indicate a robust outlook for consumer spending that extends the current expansion to at least mid 2018, which would mark the 2nd longest expansion since the mid 1800’s.”

Given that rebuilding effort combined with an expectation of major changes in policy likely to be implemented between now and yearend, we expect GDP growth for 2017 to be 2.3% and 2.8% 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 be reasonably steady this year at 1.8% thanks to a price war in the cell phone industry and falling prescription good prices caused by intimidation from President Trump.   However prices should rise by 2.3% in 2018.  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 jump in sentiment was in both the current conditions and expectations components.

Consumer expectations for six months from now rose from 84.4 to 91.3.

Consumers’ assessment of current conditions rose in October from 111.7 to 116.4.

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 the quarters ahead.

Stephen Slifer

NumberNomics

Charleston, SC


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