June 28, 2019

Personal consumption expenditures rose 0.4% in May after having risen 0.6% in April and 1.0% in March.   Consumer spending now seems back in track following the softness in spending late last year and in the early part of this year  attributable to the sharp decline in stock prices followed by the prolonged government shutdown.  The stock market recovered all of what it lost in the fourth quarter and remains close to its new record high level.  Over the course of the past year consumer spending has risen 4.2%.

Consumer sentiment is at a 15-year high level that is consistent with a 2.5% pace of consumer spending this year.

Meanwhile, the economy continues to generate about 180 thousand new  jobs per  month which is what generates the income necessary to boost our pace of spending.  If employment grows, income will grow, and consumer spending will continue to climb.

Clearly, spending will remain solid in the months ahead.  Over the past year consumer expenditures have risen a solid 4.2%.    What we are really interested in is consumption spending in real terms (i.e., after adjustment for inflation) because that is what goes into GDP (shown above).    On that basis consumption spending rose 0.2% in May after having risen 0.2% in April and 1.0% in March .  Real consumer spending has risen 2.7% in the past year.

Consumers feel great.  And why not? The stock market is has fully recovered from its precipitous decline in the fourth quarter.  Jobs creation is robust which is bolstering income.  Consumers have little debt, rates will stay low for some time to come, and consumers continue to benefit from the cut in individual tax rates.

Personal income rose 0.5% in both April and May after having climbed 0.1% in March.  During the past year personal income has risen 4.1%.

Real disposable income, which is what is left after adjusting for inflation and taxes, rose 0.3% in May, 0.1% in April after having declined 0.2% in March.  As a result real disposable income has risen 2.3% in the past year compared to its long-term average growth rate of 2.7%.

Real disposable income per capita is generally regarded as the best measure of our standard of living.  It is currently rising at a 1.7% pace which is in line with its 1.6% average increase in the past 25 years.

With a 0.5% increase in income and a 0.4% gain in spending in May, the savings rate was unchanged in May at 6.1%%.  The long-term average savings rate is 6.0%  The consumer can easily maintain his or her pace of spending in the months ahead.

Stephen Slifer


Charleston, SC