Consumer Spending, Consumer Savings, Consumer Debt and Consumer Sentiment: Why the consumer mattersSubmitted by Reed Financial Group on July 13th, 2017
There is a lot of talk about the consumer lately. Are we spending enough to keep the economy moving forward at a healthy pace? After all, consumer spending accounts for almost 2/3 of our nation’s Gross Domestic Product. Are we saving enough? Are debt levels getting too high? And are we confident that the economy is headed in the right direction? Let’s examine each of these quickly. Consumer Spending The United States Department of Labor reports on consumer spending ever month and recently released its mid-year report, finding that: Average expenditures per consumer for July 2015 through June 2016 were up 2.3% compared with the July 2014 through June 2015 time frame; Most major components of household spending increased over the 12 months ending June 2016; and The 8.3% rise in personal insurance and pensions spending was the largest percentage increase among all major components, followed by a 4.5% rise in both food and entertainment. Consumer Savings Once Bitten, Twice Shy? Since the Financial crisis, U.S. families have been saving more-and spending less-despite crushingly low interest rates. Consumer Debt Debt Milestone. Consumer debt has topped its 2007 peak, thanks to rising student loans. Consumer Sentiment Consumer sentiment refers to how confident consumers (me and you) feel about the overall economy and their personal financial state. Since the presidential election last November, consumer sentiment has continued to reside at a very high level and the recent May figure was virtually unchanged from the previous few months. In fact, the Conference Board’s index of consumer confidence remained at a 16-year high. Why Does It Matter? Consumer spending accounts for about 2/3 of all US economic activity (measured by GDP). It matters. So, What Does It All Mean? Well, let’s summarize: we are spending more; we are saving more; we are taking on more debt, and we feel good about where things are headed. As a financial advisor, I’d much prefer to see consumer spending flat, consumer savings up, consumer debt down and consumer sentiment up. But I can remember just before the Financial Crisis of 2007 – 2008 when spending was way up, savings were way down, debt was way up and sentiment was sky-high. And I didn’t like the results. As an investor, it’s important to pay attention to macro-trends. And the consumer plays a large role in the macroeconomic discussion. Call me to discuss further.