by Lance Roberts
In an interesting report from Gallup Americans' self-reported daily spending rose to an average of $90 in May, the highest since October 2008 and higher than it has been in May since the $114 found in the same month in 2008. Spending is up from $86 in April and on par with the $89 found in March.
Notice in the chart above that this analysis is based on what consumers are "saying" they are spending money on outside of their home, automobile and normal household bills. The question specifically is "what did you spend, OR CHARGE, yesterday on all other types of purchases you may have made, such as at a store, restaurant, gas station, online, or elsewhere?"
This is a very interesting question from the standpoint that while consumers are "saying" they are spending more the issue is whether they are "actually" doing it. The retail sales data from the Gallup Survey is extremely volatile so in order to smooth the data for comparison I have used a 3-month average of the annual rate of change. The chart below compares the Gallup consumer spending survey data with the actual retail sales data from the ICSC-Goldman Sachs weekly retail sales report and the BEA monthly retail sales report.
As you can see there is a big discrepancy occurring between the Gallup survey and the actual retail sales data. While consumer confidence has definitely increased in recent months, due much to the rise in the asset markets, the question becomes sustainability.
As reported by the NFIB in "NFIB: Optimism Improves But Don't Get Too Excited:"
"There are many headwinds for growth, the most important being consumer spending. Nothing encourages hiring and inventory and capital investment more than an growth in customers and spending. Consumer sentiment is up some, but not really supported by income growth or new jobs. The savings rate is under 3 percent, so spending is financed by reduced saving."
The issues of suppressed wage growth, low personal savings rates and rising credit balances leaves individuals very susceptible to incremental changes in the financial markets and the economy. The chart below shows the annual rate of change in wages compared to outstanding consumer credit as a percentage of personal consumption expenditures (PCE).
As wages have fallen credit has been used to fill the gap. The same can be seen for personal savings rates as shown below.
While consumers have shown an amazing ability to consume well beyond their means for many years by tapping cheap credit, turning their homes into ATM's and filing for governmental assistance; these sources are finite in nature. Eventually, if wages do not start to rise, full time employment doesn't increase and interest rates rise, consumers may quickly find the end of consumptive capabilities.
The disparity between what consumers are "saying" they are doing currently, and what they will "actually" do in the months ahead, will be very important to watch. Historically, there has been a fairly high correlation between consumer confidence surveys and actual retail sales. Currently, that is not the case. Of course, these certainly aren't historically normal times either.
The actual economic data has been much weaker than the "sentiment" data as of late and there is little evidence currently available that is pointing to a strong economic revival in the near future. Of course, the sentiment data has been heavily influenced by an artificially inflated asset prices. The problem is that "sentiment" can turn negative very quickly and with the Euro-zone crisis, the Middle East, and the debt ceiling debate all looming there are more than sufficient catalysts to spook the markets and send consumers running for cover.
It will be interesting to see how the latest stock market volatility has affected consumer sentiment in the upcoming reports. My bet is that we will likely see a little less optimism.
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