Consumers’ confidence, spending less buoyant than their job prospects
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There is a lot going on with the American consumer — aside from holding up the economic sky and spending enough money to account for three-quarters of U.S. gross domestic product.
Here’s the latest: The Bureau of Economic Analysis said personal income was up 0.2% in August, while our spending was up 0.8%. Inflation, meanwhile, was running at 4.3% year over year.
The University of Michigan’s consumer sentiment survey out Friday morning showed a smidge of improvement at the end of September, but that came from a pretty low baseline. Sentiment started falling sharply in midsummer due to inflation and the delta variant of the coronavirus.
What’s it all telling us about the Great American Consumer, engine of growth and prosperity?
So those numbers out today, especially consumer spending — up nearly a full percent in August — could look pretty good at first glance. But look at them again with Paul Ashworth of Capital Economics and you’ll see why they call it the dismal science.
“Yeah, I’d argue it was a little downbeat,” Ashworth said.
First off, about half of the increase in spending was actually an increase in prices from messed-up supply chains, labor shortages and the like. After accounting for inflation, real consumer spending was only up half as much, and incomes actually fell in August.
Spending was also lower than we thought earlier in the spring and summer, Ashworth said, as the boost from government relief checks faded.
“The level of real spending really hasn’t increased at all since April,” he said.
Plus, consumers are feeling less upbeat. The Conference Board’s confidence index has fallen for the last three months, said economist Lynn Franco.
“Really, the delta variant and the uncertainty that it’s created has sort of cast a bit of a dark cloud over consumers,” Franco said.
Worries about inflation are adding to the darkness. On the bright side though, there are jobs.
“And there, what we’re seeing is that people telling us that jobs are plentiful is at 55.9%, and that’s actually an all-time high. And we’ve been doing this survey since the late ‘60s,” Franco said.
It’s a bit whiplashy: income and spending weak, consumer confidence down, but workers — who are also consumers — are upbeat and earning more.
Take John Zaremba. He’s nearly 50, lives in Napa, California, and works in artificial intelligence software. He commutes and is looking to spend $40,000 on new wheels. “Thanks to the industry I’m in and all of us consumers buying a lot of e-commerce goods, my job and occupation is probably secure,” he said.
But getting a new car might be a challenge for Zaremba because dealers don’t have many for sale right now.
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