US Consumer spending is accelerating again.  Just in time for the Holiday Season.  Consumer confidence is driving a boost in holiday spending.

(Note: The Vice Index is lagged 5 months)

November Sees Several Positive Spending Tailwinds

For starters, holiday shopping started early: rather than wait for Black Friday in late November, many retailers started offering sales in early November.

Other positive trends were:

  • Mild weather: mild weather brings out more shoppers.
  • New iPhone will add to sales
  • Solid macroeconomic conditions: The economy moved at a steady pace.
  • One major headwind was the reversal of the hurricane recovery spending.From auto sales to furniture. Building materials and appliances. Hurricane recovery spending pushed up retail.  

    Now it’s reversing and that will be a drag.

    Households Spending Beyond Everyone’s Means

    The pace of consumption exceeds the pace of compensation.  

    It’s a signal suggesting consumer confidence. It’s typically seen in port-recession recovery periods.

    Against the background of steadily decelerating Compensation growth, does this mean that consumers are confident about future wage growth?  Maybe not.

    I’ll tell you now, household finances are not healthy:

    Credit card spending (revolving debt) has been accelerating the last few months

    Savings rate is bouncing off the lowest levels since the recovery began

    The savings rate is most noteworthy because, as the above charts shows, it tends to plunge in the run-up to recessions.  Meaning that households struggle to keep up their lifestyles and must tap into their savings.

    Food Services spending echoes that pullback in savings.  

    In short, households are borrowing against the future. Because they must. And because they feel that they can.

    No doubt the strong stock and housing markets are adding to the willingness to spend.  

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