Implications: Consumer spending continues to grow, not because of government handouts but because incomes are rising in the private sector. In the past three months, "real" (inflation-adjusted) consumer spending is up at a 2.8% annual rate. Meanwhile, real personal income excluding government transfer payments (such as unemployment insurance, Social Security, and Medicare) is up at a 4.7% rate. Earlier this month retail sales were reported -1.2% and some analysts used this to say we were in a "soft patch." What they missed is that spending on services is rising rapidly and auto sales were better than the retail report suggested. We expect continued healthy growth in consumer spending. The financial obligations ratio measures the share of after-tax income that consumers need to make recurring payments (mortgages, rent, car loans/leases, student loans, credit cards,...etc.). This ratio peaked at 18.9% in early 2008 and is now down to 17.4%, very close to the 30-year average of 17.2%. In particular, the obligations of renters are the lowest since 1993 and the consumer (non-mortgage) obligations of homeowners are the lowest since 1995. Only mortgage obligations remain elevated, and those are falling quickly relative to income. A combination of higher incomes and a smaller share needed to service our obligations means consumers have more money to spend.
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Posted on Monday, June 28, 2010 @ 10:47 AM
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