Consumer confidence appears to have taken a hit from the trade war news, although employment gains continue.
Consumer revolving debt – which is mostly based on credit card balances – dipped $2 billion on a seasonally adjusted basis in August to $1.078 trillion, according to the central bank’s G. 19 consumer credit report. Card balances were off 2.2 percent on an annualized basis, despite its being the back-to-school shopping season.
Total consumer debt – which includes student loans and auto loans, as well as revolving debt – was up almost $18 billion to $4.14 trillion in August, making for an annualized growth rate of 5.25 percent.
Job market remains favorable
Even as the longest economic expansion continues, concerns about the trade war situation appear to have impacted consumer confidence. In September, the Conference Board’s consumer confidence index dropped to 125.1, from August’s 134.2. In addition to the tariff situation, it seems consumers are less optimistic about employment prospects, with fewer respondents seeing jobs as “plentiful” although this follows a big jump in that measure for August.
A July survey on employment market expectations that the Federal Reserve Bank of New York released in September found that 24.5 percent of respondents were looking for a job in July, up from 22.4 percent a year ago. The average wage offer for those who found full-time work had also ticked up to $54,943, from $52,590 a year ago. And more people were looking to change employers, at 11.4 percent, compared to 10.3 percent in July 2018.
The U.S. economy continues to add jobs, which is a positive for those looking to make this transition to a new employer. The federal government reported that in September the U.S. economy added 136,000 jobs, with the private sector accounting for 114,000 of these jobs. Although the labor participation rate (the proportion of working age people actively looking for employment, or employed) remained steady at 63.2 percent, the unemployment rate dipped to 3.5 percent. This looks like an indication that more people are finding work. However, average hourly earnings dipped a cent from a month ago, to $28.09, although it was up from $27.30 a year ago.
Commenting on the jobs numbers, in his daily update, Ian Shepherdson, chief economist, Pantheon Macroeconomics, noted, “Overall, these data offer something for everyone; bulls can point to unemployment, bears will highlight average hourly earnings, and the unpersuaded can point to the OK payroll number. But this is an evolving situation, and the next clear move in the data will be downshift in job growth.”
No let up in consumer spending
In the meantime, consumer spending continues to gain. For August, the government reported retail sales rose 0.4 percent from July levels, and gained 4.1 percent from August 2018 levels. Online retailers saw their sales surge 16 percent from a year ago.
Diane Swonk, chief economist at Grant Thornton, noted in online commentary, “The details in the August retail sales report were more mixed than overall gains suggest. The consumer is still spending and supporting overall growth, but we are seeing some moderation from the across-the-board gains we saw in July. The only sure thing is the ongoing shift from shopping in stores to online, which represents a shift in preferences more than changes in economic conditions.”
The Federal Reserve has moved to an easier money policy recently, cutting its target interest rates twice this year, as it takes preemptive action against the risks posed by the ongoing trade war, and global economic slowdown. It is now watching the situation to see if any more action is required to sustain the ongoing economic expansion. Inflation is still running below the Fed’s 2 percent target, with the personal consumption expenditure price index rising 1.4 percent for August, over the year. The index rose 1.8 percent from last August after excluding volatile food and energy prices.
After the release of September jobs numbers, Shepherdson noted, in his daily commentary, “For now, we’re sticking to our view that the Fed won’t cut rates at the end of this month, but a great deal of data on both economic activity and inflation will be released before then. The FOMC clearly is split, though the Messrs. Powell, Clarida and Williams are dovish and have disproportionate sway over the Committee’s decisions.”