Tags: income | consumers | spending

Limited Income Doesn't Stop Consumers From Spending, for Now

shopping cart decorated like american flag

Tuesday, 30 October 2018 04:19 PM Current | Bio | Archive

INDICATOR: September Consumer Confidence and August Home Prices

KEY DATA: Confidence: +2.6 points/ Home Prices (over-Year): +5.8%:

IN A NUTSHELL: “Consumers are so exuberant that even the limited income will not stop them from spending, at least for a while.”

WHAT IT MEANS: With income gains lagging badly, it is doubtful that consumers can keep spending at the pace they have been lately. But that doesn’t mean consumption will fall off the cliff, at least not right away. The Conference Board reported that household confidence rose in October to its highest level in eighteen years. The robust job market is underpinning the buoyant attitude about not only the present situation but also expectations. Indeed, the report noted “that consumers do not foresee the economy losing steam anytime soon. Rather, they expect the strong pace of growth to carry over into early 2019.Families may not have a lot more money to spend, but they will still go out and buy anyway.

As for the housing market, it is going the opposite direction of confidence. Though the S&P CoreLogic Case-Shiller national index rose solidly in August, the gain on a year-over-year basis fell below 6% for the first time in twelve months. Price gains had surged in the 2012 - 2013 period, but the increases were overdone. The rise in home costs then decelerated to more reasonable levels in late 2014. From then on, they steadily picked up steam until early this year. Now, we are likely in a slow deceleration phase that should not lead to a crash since sales are not faltering greatly.

MARKETS AND FED POLICY IMPLICATIONS: When people feel good about the future, they are more willing to spend and right now, they are really happy about current and future economic activity. They think that the current job market is really great, though they a bit more uncertain about the next six months. Still, there is not a lot of fear out there and that is good for the economy. And it is another reason that most economists don’t expect growth to fall off the cliff anytime soon. Even the problems in the housing market are more controlled than last decade, as sales remain at reasonable, not greatly elevated levels. Thus, we should not be saddled with lots of homes sitting vacant, as we were when the housing bubble burst. Taken together, today’s data are actually positive, since they point to a solid household outlook but only moderating, not collapsing housing prices. The Fed, which meets next Wednesday and Thursday may take note of the softening housing market, but not express any great concern. It will likely signal another rate hike is coming.

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.

© 2019 Newsmax Finance. All rights reserved.

1Like our page
Families may not have a lot more money to spend, but they will still go out and buy anyway.
income, consumers, spending
Tuesday, 30 October 2018 04:19 PM
Newsmax Media, Inc.

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

© Newsmax Media, Inc.
All Rights Reserved