The Economy is "In a Good Place." Thank the U.S. Consumer.
February 18, 2020
By Krista Eberly, CFP®
Securities Analyst II
While the coronavirus continues to dominate day-to-day headlines and cause worry among investors, I wanted to shift the focus this week to something completely different.
As Fed Chairman Jerome Powell noted last week in his semi-annual testimony to Congress, “the U.S. economy is in a good place.” One key reason for this is the U.S. consumer.
Why does the U.S. consumer matter?
Gross Domestic Product, or GDP for short, is the value of all goods and services produced within a country. It measures changes in economic progress. Each country will vary on what drives its economy. For example, exports are the main growth driver for many emerging market countries. For the U.S. economy, it is the consumer. Consumer spending comprises over two-thirds of our economic activity. Therefore, the health of the consumer matters.
How is the U.S. consumer doing?
The U.S. Commerce Department's quarterly retail sales report helps us gauge the health of the consumer. On Friday, the Commerce Department reported that retail sales rose 0.3% in January, the fourth consecutive monthly increase. The bright spots were restaurants, bars, and building activity; while electronics, clothing, and lower gas prices were the detractors.
The chart below from the U.S. Census Bureau and FHN Financial shows the month-over-month and year-over-year changes in retail sales going back two years. Notice that the year-over-year growth rate is declining. However, it is still growing at a healthy yearly rate of just over 4%:
A positive for consumer spending this month is Valentine’s Day. The National Retail Federation is forecasting a sharp increase in spending due to a strong economy. Below are two charts from the Wall Street Journal’s Daily Shot® that illustrate this. The top chart is total expected Valentine’s Day spending and the bottom one is per person.
What do we see for the U.S. consumer going forward?
Even though the yearly growth rate for retail sales slowed down to start the year, it is still growing nonetheless. As long as consumers are still spending, this bodes well for U.S. economic growth. Also, consumer confidence remains high, the unemployment rate remains historically low at 3.6%, and average hourly earnings rose 3.1% year-over-year in January. This is why we believe the consumer will continue to keep the U.S. economy moving forward in 2020.
If you would like to discuss the U.S. consumer in further detail or want to share your thoughts on Valentine’s Day spending, feel free to give us a call. In addition, if you have not yet scheduled a year-end review, contact your Wealth Management Advisor today!