{"id":1650,"date":"2020-01-31T10:50:54","date_gmt":"2020-01-31T15:50:54","guid":{"rendered":"https:\/\/naroffeconomics.com\/?p=1650"},"modified":"2020-01-31T10:50:54","modified_gmt":"2020-01-31T15:50:54","slug":"december-income-and-spending-fourth-quarter-employment-costs-and-january-consumer-confidence","status":"publish","type":"post","link":"https:\/\/naroffeconomics.com\/?p=1650","title":{"rendered":"December Income and Spending, Fourth Quarter Employment Costs and January Consumer Confidence"},"content":{"rendered":"\n

KEY DATA:<\/strong>  Consumption: +0.3%; Real: +0.1%; Income:\n+0.2%; Real: -0.1%\/ ECI (Over-Year): +2.7%; Wages: 2.9%; Benefits: +2.2%\/\nConfidence: +0.5 point<\/p>\n\n\n\n

IN A NUTSHELL:<\/strong> \u00a0\u201cRising consumer confidence can take the economy only<\/em><\/strong> so far given the relatively modest gains in income.\u201d<\/em><\/strong><\/p>\n\n\n\n

WHAT IT\nMEANS:<\/strong>  Yesterday\u2019s GDP report gave us a full view of\nwhere household spending stood at the end of last year, so the December numbers\nonly provide some additional detail. \nThat said, it looks like household spending is decent but there are questions\nabout the sustainability of the pace reached last year. <\/em><\/strong> On the surface, it looks like household did\nspend money moderately in December.  But when\ninflation is factored in, real consumption gains were unexceptional.<\/em><\/strong>  Vehicle sales, which peaked in 2016,\ncontinued to slowly tail off, while demand for nondurable products and\nservices, when inflation-adjusted rose somewhat modestly.  The reason is simple: Income is just not growing\nfast enough to support even the modest to moderate spending increases.<\/em><\/strong>  Real disposable income, which adjusts for\nboth inflation and taxes, declined in December, the second month in the past\nthree that happened.<\/em><\/strong>  As a\nconsequence, households had to save less and the savings rate declined.<\/em><\/strong>  The level is still fairly high, so households\nshould be able to draw from their savings more to sustain the spending\npace.  However, it could become more\ndifficult for consumption to accelerate if the income gains remain tepid.<\/p>\n\n\n\n

And there are few indications that businesses are\nwilling to pay more to their workers. \nThe fourth quarter Employment Cost Index, which includes both wages and\nbenefits, rose at a moderate pace.  <\/em><\/strong>Wage gains were solid, but\nbenefits were up modestly over the year. \nThe year-over-year increase in wages and salaries peaked in 2014 and\nsince the third quarter of 2017, it has steadily decelerated.<\/em><\/strong>  Firms may have switched to providing\nnon-pecuniary benefits, which many employees prefer, but that does nothing to\nspending power.  The opposite is true for\ngovernment, which has minimal power to provide certain types of perks.  Benefit costs are rising faster in that part\nof the economy but wage gains are slower. \n<\/p>\n\n\n\n

With jobs plentiful and the unemployment rate at\nhistoric lows, it should not be a surprise that consumer confidence remains\nhigh.  The University of Michigan\u2019s\nConsumer Sentiment Index rose modestly in January, but the level is only\nslightly below the peak in this cycle that was reached in March 2018.<\/em><\/strong>  The current conditions measure edged down\nwhile expectations improved.  Both are at\nquite high levels as well.  MARKETS AND FED POLICY IMPLICATIONS:<\/strong>The\nadministration continues to insist that the economy will grow at a 3% pace or\neven more.  <\/em><\/strong>We could get a\nquarter here and a quarter there of stronger growth, but over an extended period, there\nare no factors out there that suggest that will will happen.<\/em><\/strong>And there is nothing wrong with 2% growth.<\/em><\/strong>  Yes, it is back to the future in that the \u201cdreaded\nObama growth rate\u201d (similar to the Dread Pirate Roberts) has returned.  But as I and many other economists have\nargued, that is trend growth.<\/em><\/strong>Given\nthe tight labor markets, growth well in excess of trend could put a major\nstrain on labor markets and the ability to restrain wages could dissipate\nrapidly.  Which means we don\u2019t even want\n3% growth,<\/em><\/strong> unless rising inflation and interest rates is your preferred\ngoal.  It appears that trend growth can\nbe sustained for a while longer without creating major bubbles, so let\u2019s\nembrace it not attack it.<\/em><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

KEY DATA:  Consumption: +0.3%; Real: +0.1%; Income: +0.2%; Real: -0.1%\/ ECI (Over-Year): +2.7%; Wages: 2.9%; Benefits: +2.2%\/ Confidence: +0.5 point IN A NUTSHELL: \u00a0\u201cRising consumer confidence can take the economy only so far given the relatively modest gains in income.\u201d WHAT IT MEANS:  Yesterday\u2019s GDP report gave us a full view of where household spending … Continue reading December Income and Spending, Fourth Quarter Employment Costs and January Consumer Confidence<\/span> →<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1650","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1650","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1650"}],"version-history":[{"count":2,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1650\/revisions"}],"predecessor-version":[{"id":1652,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1650\/revisions\/1652"}],"wp:attachment":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1650"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1650"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1650"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}