The American consumer is a massive economic force, and one economist says American consumers are feeling incredibly positive.
According to a report from Robert Johnson at Morningstar, Americans’ actual spending is a far better indicator of actual consumer confidence, and by that measure consumers are doing just fine.
Johnson uses data on restaurant spending, auto sales and single-family home purchases as proxies for consumers’ sentiment in the short-, medium- and long-terms, respectively.
“We like to use these measures because the data is available quickly, usually a matter of weeks after month end,” wrote Johnson. “This is even better than confidence surveys, which take more time to compile. And those sentiment surveys measure only intentions.”
All three of these measures, said Johnson, show a robust, emboldened American consumer.
Johnson’s measure of short-term confidence, restaurant retail sales, is posting its best numbers since the 1990s.
“The news here is excellent, with restaurant sales currently up over 8% year over year,” said Johnson. “One would have to go way back to the 1990s to find a time of higher restaurant sales growth rates. If someone asks me where consumers are spending their gas money savings, this category would be at the top of my list.”
This is a good proxy, he claims, because it is a “small luxury” that can be dialed up or back depending on the consumers income and confidence.
Johnson says that auto sales are telling because they indicate a consumer willing to take on a larger debt.
“If consumers were worried about their employment or wage outlook, they wouldn’t be committing to big auto purchases,” he said.
This category is also stronger than it has been in years.
“At the beginning of 2015, most sales focused on the 16.8 to 17.0 million range,” said Johnson. “It now looks like sales are much more likely to fall in the 17.0 to 17.5 million range for 2015, compared with 16.4 million units in 2014.”
Finally, Johnson’s indicator for long-term confidence is housing starts.
“Requiring even more confidence than buying a car is buying a home,” said Johnson. “With average new home prices of about $US360,000, a home purchase is 10 times bigger than a car and totally dwarfs a $US100 restaurant meal.”
As with restaurant spending and auto sales, housing starts and spending are showing a consumer that still feels confident enough about the future to take on a large debt load.
“Current sales levels, as shown in the far right-hand column, remain near recovery highs,” said Johnson. “So while new home sales have slowed modestly, the year-over-year growth rates remain impressive and hardly indicative of any kind of consumer temper tantrum.”
There has been some concern whether this level of spending confidence indicates the peak of the current economic cycle, to Johnson all of these indicate a stronger US economy.
“With the stock market off mid-single digits year to date, continued negative headlines out of both China and Greece, and continuing uncertainty at the Fed regarding interest rates, one might rightfully expect consumers to be panicking,” said Johnson. “They are not, at least not yet, according to our favourite measures of consumer sentiment.”
This story was originally published by Morningstar.
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