The State of the Consumer remains a key component of the economic recovery in the good ‘ol USofA. The general consensus is that with home values falling, 401(k) plans having turned into 301(k) plans, and consumer debt still entirely too high, Mr. and Mrs. John Q. Public aren’t likely to return to their free spending ways anytime soon. And it is this assumption that has most economists expecting a less-than robust recovery in the U.S. this year.
It is for this reason that we try to publish the results of just about every economic report relating to the consumer that hits the wires. In short, we want our readers to have access to the data firsthand, so that they can make informed decisions about the state of both the consumer and the economy.
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Getting back to the matter at hand, the recent data on the status of the all-important U.S. consumer shows that the public may be saying one thing but actually doing another. For example, Friday’s reports presented conflicting views on the state of the consumer.
On the one hand, the University of Michigan Confidence index, which surveys consumers on their views and expectations, slipped 1.1 points in March and came in well below expectations. Thus, a level-headed analyst might conclude that the consumer remains concerned about the health of the economy and may not be terribly comfortable about the future given the situation in the job market.
Yet on the other hand, the report from the Commerce Department Friday showed that Retail Sales came in above consensus estimates and rose for the fourth time in the last five months. And when you exclude the sales of autos and gasoline (items that tend to distort the general trend of retail sales) the numbers also were up nicely (+0.9%) and above expectations.
Digging into the Retail Sales report further, we see that almost all categories posted gains. Electronics and appliances rose 3.7%, which was significantly above analyst estimates, food and beverage sales increased by the largest amount in a year, and housing related sales were also up nicely. And what is perhaps most impressive is that all of these sales gains occurred despite the really crummy weather that hit the east in February.
Another common thought amongst economists these days is that the public is busy paying down their credit cards and reducing their overall debt load. If this is the case, then it is correct to expect an uninspiring economic rebound due to the fact that money used to pay down debt is money that will not be spent on goods and services (which would help the economy grow).
However, the demise of consumer debt may be greatly exaggerated. According to data from the Federal Reserve, Household Debt (which includes home mortgage and credit card debt) remains at 122.5% of Disposable Personal Income. Sure, this number is down from the pre-crisis high of 130.6%, but the simple fact of the matter is that Americans continue to spend more than they make. (For the record, the average debt/disposable income ratio since 1952 is 74.7%.)
Another way to look at what consumers are doing is via Personal Saving Rates. The bottom line is while the savings rate of Americans is indeed up from its pre-crisis levels of below 1%, at 3.3%, our savings rate is still nowhere near the fifty-year norm of 7%. And to put the recent increase in savings into perspective, the current Personal Savings Rate remains below the average seen during the free-spending, go-go period of the 1990’s.
So, which is it? Are consumer frightened and staying curled up in their foxholes, or are they returning to the malls on the weekends? Objectively speaking, it does appear that Americans are trying to pay down some debt. However, the progress being made on debt reduction pales in comparison to the spike in spending that occurred over the last 10 years. Thus, we will suggest that the public’s love affair with the mall, while not as passionate as it once was, remains mostly intact.
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