Thursday, December 6, 2018
Consumer spending looks like classic later cycle pattern
- by New Deal democrat
There were a couple of reports earlier in the week that shed some light on several important sectors.
First, October residential construction spending was reported. This series lags the housing sales data, but has the advantage of being smoother than any other series, including single family permits. Here they are for the last 20 years:
As you can see, residential construction peaked at the beginning of this year and has begun a downward trajectory. It is currently off about -5%, which is about the same % it declined in 1999 (a *very* slight decline) before the 2001 recession - a business and employment recession that consumers pretty much sailed right through. I'm not anticipating this turning back up until permits do.
Second, November motor vehicle sales were reported, at 17.4 units, down -0.5% from one month before, but well within the range of this metric since the beginning of 2015 (Note: graph below only goes through October):
As you can see, it is very typical for vehicle sales to plateau like this until less than a year before a recession begins.
Since housing and cars are the two biggest consumer durable purchases, this signals that neither leading sector is growing, very typical for late cycle behavior.
In fact, the change in consumer purchasing behavior between the earlier vs. later part of expansions is so well-established that variations on it are two of my mid-cycle indicators. I went back and took a look at where we stand and, well, the results are interesting. That will be the subject of a follow-up post.