Category Archives: Consumer Spending and Income

Consumer Spending and Income, Durable Goods Orders, Economic Indicators, Weekly Jobless Claims

October Consumption, Income, Durable Goods Orders and Weekly Jobless Claims

KEY DATA: Consumption: +0.2%; Real Disposable Income: +0.1%/Orders: +0.4%; Business Investment: -1.3%/Jobless Claims: 313,000 (up 21,000)

IN A NUTSHELL:   “On a day where there are a rafter of data, only some of them are turkeys.”

WHAT IT MEANS:  The long weekend has created a backlog of numbers and they are all coming out this morning.  The first group were somewhat mixed.  Consumer spending continued to improve in October, which is very good news.  Indeed, it rose despite a reduction in durable goods demand.  That was a little odd as total vehicle sales edged upward.  A solid holiday shopping season could push consumer demand up to 3% for the fourth quarter, which is where I have it.  As for income growth, that was not as strong as we would like, but conditions are clearly changing.  While gains are not spectacular, total wages and salaries have increased by 4.4% over the year.  Yes, some of that is due to more jobs, but about half is due to actual wage increases.  Still, adjusted for inflation, average wage increases continue to lag.

On the manufacturing front, durable goods orders rose in October.  That was a bit of a surprise, but the details are what matter.  There was a 45% increase in defense aircraft orders and that is not likely to be repeated given the spending restraints in place.  Excluding defense, orders were down sharply.  In addition, the best measure of business investment, nondefense, nonaircraft capital goods orders, posted a second consecutive 1.5% drop.  That is not a sign of aggressive business investment activity.  Order books are filling, so that should lead to more production.

Finally, there was the very strange large surge in weekly jobless claims.   The individual state data don’t seem to jive with the overall change so it is hard to really know why that happened.  Also, Thanksgiving is late this year so maybe there was an issue with the seasonal factors.  In any event, this number should be viewed with caution.  We need to see what happens over the next few weeks to determine if the labor market tightening process is moderating.  Keep in mind; the level is still consistent with solid, though not robust, job gains.

MARKETS AND FED POLICY IMPLICATIONS: It is unclear what to make of today’s numbers.  Nothing was overly strong and there were some weak reports as well.  So the best that can be said is that confusion about the strength of fourth quarter growth remains high.  The estimates range from the low 1% to over 4%, which shows that economists are clueless right now about what is happening.  I still think we could approach 4%, but we need a really good holiday shopping season.  So, go out and spend like crazy this next week.

Have a Happy Thanksgiving!

Consumer Spending and Income, Economic Indicators, Employment Cost Index

September Consumer Spending, Income and Third Quarter Employment Cost Index

KEY DATA: Consumption: -0.2%; Income: +0.1%/Employment Costs (Year-over-Year): +2.2%; Wages and Salaries: +2.1%; Private Sector: +2.3%

IN A NUTSHELL:   “Household incomes are finally starting to rise but there is no rush to spend it.”

WHAT IT MEANS:  Yesterday’s strong GDP report pretty much told us what happened with consumer spending during the summer and today’s report fills in the details about the monthly pattern.  Very simply, there is no pattern.  Consumption was flat in July, soared in August and fell in September.  Part of that was a robust return to vehicle demand in August, which skewed the trend.  But there were also ups and downs in the services and the nondurables components, so it is really hard to know what people have been thinking.  The real issue, though, is can they afford to spend more.  Two bits of information point to increases in incomes, but nothing great just yet.  Personal income was up in September, but when adjusted for inflation, it was largely flat.  That is, purchasing power went nowhere.  Disturbingly, wages and salaries, the key to both spending and Fed policy, rose minimally during the month.  That is important because the wage and salary component of the Employment Cost Index, an aggregate measure of compensation, has been accelerating.  In the third quarter, private sector wages and salaries rose at the fastest pace in six years.  Hopefully, the September moderation was just an aberration.  We need greater increases in household incomes if the strong economic growth we have seen for the past two quarters can be sustained.  Inflation remains totally under control.

MARKETS AND FED POLICY IMPLICATIONS: Fed Chair Yellen is looking for any sign that the tightening labor markets are finally causing wages to rise.  That is not happening just yet, but the trend is in that direction.  Worker compensation, especially in the private sector, is accelerating.  It is not so high just yet that warning bells are being set off at the Fed, but another six months and we should be there.  But the sluggish rise in wages in September is a warning that the pattern will not be clear-cut until employers start bidding for workers.  Right now, that is happening only in a few industries, occupations and regions.  It needs to be more widespread.  The limited income gains imply that spending will continue to grow moderately at best.  We need that to change if we are to get this economy into high gear.  The key may be the holiday shopping season and if the consumer confidence numbers are any indicator, it could be really good.  Today we saw the Thompson Reuters/University of Michigan’s Consumer Sentiment Index hit its highest level in over seven years.  That came after the Conference Board’s Confidence Index also hit a seven-year high.  Consumers are feeling good and it will only take a little more money to get spending to surge.  As for the markets, it looks like investors actually think that economic fundamentals, not the Fed, will drive prices and if that is the case, people should be feeling pretty good right now.