Monday, June 13, 2011

A Closer Look At the Consumer

First, see this post from last week, where I look at income, spending and commodity prices.

Let's start by looking at overall real PCEs -- which are clearly in an uptrend and are now above pre-recession levels.

Service expenditures comprise about 65% of PCEs. This component of PCEs are also in a strong uptrend and are above pre-recession levels.

Non-durable goods comprise about 20% of PCEs. This component is above pre-recession levels, but note the upward move has slowed over the last few months. This type of slowing is evidence during other parts of the recovery, so it's not fatal. But it does bear watching.

Durable goods as a percentage of PCEs is also increasing and is above pre-recession levels. However, the last three months, this data series has also slowed its upward move. This has happened before, so, again, it's not fatal. But it does warrant some caution going forward.

Overall real retail sales are also still increasing, although they are below pre-recession levels

Auto sales were doing well, but dropped sharply last month. Because durable goods require financing -- and therefore a confident attitude about the next 3-5 years -- this drop is especially troubling and needs to be watched closely.

The University of Michigan's confidence index has been stalled at low levels for about a year. The reason is simple: unemployment is over 9%, job growth has been weak and wage growth has been slow.

Despite low confidence, the overall numbers are encouraging. Most importantly, they do not point to a "sky is falling" scenario. They do indicate the consumer is under obvious pressure from a weak job market and high commodity prices. These two factors are leading to a slowing of overall purchases and the drop in auto sales. But, again, there is nothing in the data that says a consumer spending contraction is on the way.