All Posts Tagged: stock market

U.S. Outlook: Are Consumers About to Feel a Squeeze?

Scott Anderson
Chief Economist

Are Consumers About to Feel a Squeeze?

We think it’s about to get harder for consumers in the quarters ahead. For now, they actually still feel pretty good about their current job and financial situation.

Consumer sentiment just hit a three month high in October, according to the University of Michigan Survey.

Indeed, U.S. households still have a lot going for them.

The U.S. unemployment rate just hit a 50-year low. Household net worth continues to climb to new record highs. Aggregate U.S. household net worth has never been higher in either nominal or in inflation-adjusted terms. Household net worth through the second quarter has climbed $53 trillion, or 88%, from the post-recession low.

Even more impressive, household net worth is now $42 trillion higher than the dot-com peak of $71 trillion. While ultra-loose monetary policy over the past decade has had a debatable record on restoring full-employment and stable price inflation, its impact on restoring households’ asset values and deflating their debt burdens is indisputable.

The combination of rising stock and home prices and historically low borrowing costs have helped households shed a tremendous amount of debt. In fact, household debt as a share of disposable personal income has dropped from about 134% in 2008 to just 97% in 2019.  That is the lowest household debt level in nearly 20 years.

Moreover, low interest rates have ensured that the challenge of paying down debt is manageable. The Fed’s debt service payments ratio, which is the ratio of debt service payments to disposable personal income, is currently at a record low 9.7%.

So what should you be watching in the quarters ahead?  The good news on the U.S. labor market appears to be peaking. In fact, job opening growth peaked way back in November 2018 at 23.7% from a year ago. By August job opening growth had dropped to -4.0% from a year ago.  New job openings are often a leading indicator of future employment growth. Hires are also down 0.8% from a year ago. Thankfully layoffs have so far not accelerated. They are nearly flat from a year ago, consistent with the lean jobless claim data so far in October. But watch if layoffs begin to accelerate in the months ahead: it could mean the U.S. economic slowdown is entering into a new, more dangerous phase.

Also, low unemployment today does not appear to be translating into higher real wages for workers. Real average hourly earnings growth has slowed this year to a lackluster 1.2% through September after showing some promise late last year.  At the same time, core CPI inflation continues to creep higher to 2.4% today with strong price increases for medical services and housing. Inflation in those areas is being fueled by supply shortages in the marketplace, limiting monetary policy’s ability to keep these price increases under control. Households in need of these services are definitely going to feel the squeeze in the quarters ahead as incomes fail to keep pace.

Additional tariffs on U.S. consumer imports  from China in December could add to consumer inflation pressures, at least temporarily. They could be another important headwind on real consumer spending growth in 2020. So, while U.S. consumers are not leading the current economic slowdown, they could join it in 2020. Consumers are definitely going to start feeling a squeeze.

Click here to download my full U.S. Outlook, delivered on October 11.

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U.S. Outlook: Dark clouds loom over the global economy

Scott Anderson
Chief Economist
dark-clouds-manufacturing-outlook

Bad news about the global economy seems to be piling up. Last week the OECD cut its 2019 global growth estimate to only 3.2% from 3.3% forecast just two months ago.

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Investment Insights: April fools rush in

Wade Balliet
Posted by Wade Balliet
Investment Strategy

Our team has continued to enjoy beneficial positioning in the current investment environment, though we continue to be wary of how long such notable gains can last. Financial market fundamentals remain fairly positive in our view, but those may be overshadowed in the future by potential negative factors, particularly from geopolitics.

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Investment Insights: Excerpts from our 2019 outlook

Wade Balliet
Posted by Wade Balliet
Investment Strategy

There is greater uncertainty heading into 2019 than in many previous years.

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U.S. Outlook: Trimming our GDP forecast

Scott Anderson
Chief Economist
National monuments and museums in Washington DC were closed during the U.S. governemnt shutdown in 2013.

How will the government shutdown impact our GDP forecast? Scott Anderson examines the data in his U.S. Outlook.

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