The US consumer is still relatively strong The US consumer is still relatively strong The US consumer is still relatively strong

The US consumer is still relatively strong

Macro
Christopher Dembik

Head of Macroeconomic Research

Summary:  Yes, the University of Michigan consumer confidence survey slightly undershot expectations. But the US consumer is still relatively strong.


The numbers

The preliminary data for the January University of Michigan consumer survey was released today. Consumer sentiment stands at 99.1 vs an expected 99.3 and prior 99.3. This is not really disappointing as it remains in its long-term range. In addition, inflation expectations are on the rise, at 2.5% vs prior 2.3%. It will be something that we will watch closely in the coming months. 

The big picture

Overall, the US consumer sentiment remains broadly well-oriented mostly due to the continued improvements in the job market. Historically, the US labour market figures tend to have a very strong impact on consumer attitudes. As long as the unemployment rate is stable (U-3 is standing at 3.5%) and wages are still close to 3% YoY – the last print was at 2.9% which is above the last 10-year average of 2.3% - and the under-employment rate is at a low point, there is no threat of a prolonged decline in US consumer sentiment.

The households’ financial situation has also significantly improved over the past months, which has certainly played a major role in 2019. The debt ratio continues to move down at 96% of disposable income and the debt service ratio, which is probably more important to watch, is at a historic low at 9.6%.

For the coming months, we expect the positive start of the earning seasons should be a factor of higher consumer confidence if the trend is confirmed next week by upcoming releases. The hope for tax cut 2.0 could also be a positive driver in case the government decides to proceed before the presidential election.

The only (minor) risk we will continue to monitor closely this year is food inflation, which is rising fast in many Asian countries (notably China, India and Vietnam) and that could lead to inflationary pressures in the US if it is not contained.

In our view, the US consumer is still relatively strong. Personal consumption should remain for most of 2020 the key contributor of real USD GDP growth, along with government spending, as was the case in Q2 and Q3 2019.

 


Boulevard Plaza, Tower 1, 30th floor, office 3002
Downtown, P.O. Box 33641 Dubai, UAE

Contact Saxo

Select region

UAE
UAE

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.