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Economic Watch: Consumer Confidence, Spending Increasing

Consumers are feeling better than they were before and are spending more money because they are taking home larger paychecks, according two new reports. That bodes well for truck freight.

Evan Lockridge
Evan LockridgeFormer Business Contributing Editor
September 29, 2015
Economic Watch: Consumer Confidence, Spending Increasing

 

4 min to read


Consumers are feeling better than they were before and are spending more money because they are taking home larger paychecks, according two new reports. That bodes well for truck freight.

The Conference Board’s Consumer Confidence Index, which increased in August to a revised 101.3, improved moderately in September, hitting 103.0.

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This latest reading is much higher than many analysts were expecting, after a report last week showed a decline in consumer sentiment.

The Present Situation Index increased from 115.8 last month to 121.1 in September. The Expectations Indexm, however, edged down to 91.0 from 91.6 in August, according to the private research group.

"While consumers view current economic conditions more favorably, they do not foresee growth accelerating in the months ahead.”

“Consumers’ more positive assessment of current conditions fueled this month’s increase, and drove the Present Situation Index to an eight-year high,” said Lynn Franco, director of economic indicators at The Conference Board. “Consumers’ expectations for the short-term outlook, however, remained relatively flat, although there was a modest improvement in income expectations. Thus, while consumers view current economic conditions more favorably, they do not foresee growth accelerating in the months ahead.”

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Consumers’ appraisal of current conditions was more positive in September. Those saying business conditions are “good” increased from 23.7% to 28%, while those claiming business conditions are “bad” declined modestly from 17.8% to 16.7%

The improvement in consumer confidence in September is a pleasant surprise, given recent uncertainty surrounding the global economic outlook and, related to that, falling U.S. equity prices, according to Josh Nye, economist at RBC Economics.

"A strong labor market, lower gasoline prices and a strengthening housing market ... will continue to fuel consumer spending in the second half of 2015."

“U.S. consumers seemed to shrug off these developments, instead focusing on the positive domestic outlook, which offers plenty of cause for optimism given a strong labor market, lower gasoline prices and a strengthening housing market,” he said. “We expect these factors will continue to fuel consumer spending in the second half of 2015, thus helping to sustain an above-trend pace of U.S. GDP growth."

Nye said it is worth noting that the cutoff for preliminary results for the September confidence survey was Sept. 17, which is prior to renewed declines in U.S. equity prices, meaning there is potential for a downward revision to the final reading for September.

“That said, we continue to expect the strong domestic outlook will trump global uncertainty and recent weakness in equity prices to leave consumer sentiment at solid levels and support continued growth in consumer spending,” Nye said.

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The report follows a separate one released Monday by the U.S. Commerce Department showing consumer spending in August rose, but income growth slowed.

Personal spending increased 0.4% for the second straight month as incomes gained 0.3% following a 0.5% jump in July. The annual pace of spending is 3.5%, down from 3.7% last month. Spending peaked in August 2014 at 5% and has since slowly waned, stabilizing at a near 3.5% in early 2015.

Much of the increase in spending during August was due to a 0.9% gain in purchases of durable goods, those designed to last three years or more, due partly to a 3% increase in new motor vehicle sales.

Year-over-year, personal income is up 4.2%, down from a 4.3% annual pace reported last month, and an even further retreat from a recent peak of 5.2% in December 2014.

Stifel Fixed Income Chief Economist Lindsey Piegza characterized the report as “a slightly more favorable personal spending report than expected, with a stronger gain in consumer purchases and moderate income growth. While not as robust as last year, consumers are still spending in the face of modest labor market opportunities and international uncertainty, which is to say they are spending in spite of less than favorable conditions.”

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According to Piegza, from the Federal Reserve’s point of view, this is a welcome step in the right direction from the standpoint of household activity.

“However, the still nonexistent level of inflation makes it difficult for the Fed to justify a rate hike anytime this year."

Her comments are in sharp contrast to those from RBC Economics Senior Economist Nathan Janzen.

“We continue to view domestic economic conditions as strong enough to warrant higher interest rates and, provided concerns about the impact of financial market volatility diminish, we expect the first increase in the Federal Funds target from its current 0% to 0.25% range in December,” he said.

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