"Health of US Consumer"
There are many datapoints which monitor the health of the US consumer that can provide some indication of the future direction the US economy. The health of the US consumer is critical for economic growth because consumer spending makes up approximately 70% of overall economic activity, as measured by US Gross Domestic Product (GDP).
Some of the key indicators we reference to judge the health of the consumer and economy are:
- Unemployment rate – latest data point 3.5%
- US retail sales – up 2.3% year over year
- NAHB Housing Market Index – increased to 71 in October highest since February 2018
- University of Michigan Consumer Sentiment – 93.2 in September, a healthy number
We feel the unemployment rate is one of the key indicators measuring the health of the consumer. The latest data point for unemployment rate was 3.5%, the lowest rate since December 1969. The unemployment rate in chart below shows a steady decline from near 10% in 2009 to the latest reading of 3.5%.
The drop in the unemployment rate has helped propel the economy and stock market forward for the last decade. The current low unemployment rate suggests a high level of US consumers are actively employed which should act as a tailwind for the US stock market.
Another important indicator we monitor is monthly retail sales year over year change. Retail spend rate reflects how much or how little consumers are spending. When consumers are working and feel good about their job and the economy, they tend to spend more. The chart below shows the latest year over year percent increase of 2.3% for monthly retail spend.
For the last decade consumers have increased their monthly year over year spend except last December when fears of economic slowing combined with a near 20% drop in the US stock market caused consumers to become cautious and spend less than the year before. As you can see, this trend has reversed, and consumer spending has rebounded back to levels consistent with the expansion of the last 10 years.
There have been a lot of questions recently about the health of the US consumer and the overall economy. The data we monitor continues to show the US consumer is relatively healthy and can continue to spend to support the US economy. We can see proof of this with the recent strength of the US GDP growth above 2%. We continue to monitor changes in employment trends and consumer spending for changes that could have an impact on the US economy.