The US economy is growing.
And that growth is being fuelled by one key source: the American consumer.
However, economists agree that consternation about those disappointing reports should be more than offset by the strength in consumer sentiment and personal spending.
Americans are spending. And that consumption represents almost 70% of the economy.
“This is literally shoot the lights out sort of stuff, and no smoke and mirrors and it is powered by the U.S. consumer with their spending,” wrote Bank of Tokyo-Mitsubishi’s Chris Rupkey after the GDP report.
Here are three stats from today’s data dump reflecting this theme:
- UMich’s consumer sentiment index is at the highest level since January 2007 (!) The University of Michigan‘s report showed that consumer sentiment index climbed to 93.6 in December, from 88.8 in November. “Improved income expectations should bolster big-ticket consumer purchases in the fourth quarter, and we continue to look for stronger consumer spending growth to support GDP growth in Q4,” Barclays’ Jesse Hurwitz said.
- Personal consumer spending was revised up. In Tuesday’s GDP report, there was also a significant revision for personal consumption growth — up to 3.2% from 2.2%. Americans are “back to spending as much as they did in the housing bubble economy years,” Rupkey said.
- Personal spending was revised up. Personal spending grew by 0.6%, which was a bit stronger than the 0.5% expected. “A 0.7% m/m leap in US real personal spending in November suggests that a further acceleration in consumption growth in the fourth quarter will compensate for a likely stagnation in business investment in equipment,” Capital Economics Paul Dales said. “The upshot is that it is now possible that GDP growth in the fourth quarter will be even stronger than our current 3.0% forecast.”
“The suite of consumer sentiment, income, spending and prices suggest that Q4 spending will be solid,” BNP Paribas’ Bricklin Dwyer said.
“The economy is heating up,” Rupkey said. “Right now, even if consumers buy not a dime more in December, real consumer spending will be 4.2% even better than the 3.2% growth rate in the third quarter, the surprise upward revision of 1 percentage point we got at 8:30 this morning.”
“Gasoline prices have been dropping so is this boosting consumption? Heck yes, it is going straight up,” Rupkey said.
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