Strength of the US Consumer

November 7, 2019

Weekly Commentary October 25, 2019

Despite ongoing fears of a looming recession, the U.S. consumer has remained strong and maintained healthy spending habits over the last several years. Since Americans haven’t overspent, they are in a position to use cash toward retail spending, in addition to travel and leisure activities as evidenced by an increase in fully booked commercial flights1 and cruises.2 As such, we recently added several consumer-focused companies into our SELECT stock list, including Delta Air Lines (DAL), Ollie’s Bargain Outlet (OLLI) and Carnival Cruise Line (CCL).

In the face of market uncertainty, why does consumer confidence remain high? There are a few key driving factors:

1. Recent wage growth. While some believe we are nearing the end of this record market expansion3, consumers are experiencing real wage growth of about 3 to 4 percent and increases in take home-pay.4 Wage increases have even been occurring among some of the lowest-paying jobs, suggesting this trend is reaching almost all areas of the workforce.5 This is certainly contributing to the boost in consumer confidence. Initial survey results from the University of Michigan revealed that the Michigan Consumer Sentiment Index (MCSI) rose to a strong reading of 93 for the month of September, up from an August reading of 89.8.6

2. Combination of low inflation and a strong dollar. Inflation levels and the strength of the U.S. dollar are two sides of the same coin. When the dollar appreciates, consumers’ purchasing power increases. And if prices are falling or increasing only slowly, it is a great recipe for higher consumer confidence. Today, though the global economy is undeniably slowing7, the U.S. dollar remains strong8, wages are rising and inflation is low9, further propelling U.S. consumer health in a positive direction.

3. Consumer behavior. Leading up to the Great Recession of 200810, spending spiked as American consumers and corporations made expensive purchases, increased borrowing and took on significant amounts of leverage on houses and other assets. While corporate11 and government12 borrowing has continued to increase, consumers have been very disciplined and shown impressive levels of self-control. It’s clear that American households learned a valuable lesson and have not gotten back in over their heads financially. Today, consumers are the most fiscally responsible pillar holding up the U.S. economy and helping to keep a recession at bay. Savings rates are healthy13 and, as seen in the chart below, the percentage of household income being used to pay interest on debts is at historically low levels.14


Overall, U.S. consumer strength remains critical to the health of the economy, especially as corporate spending and investing have fallen off in light of U.S.- China trade tensions.15 The American consumer has truly stepped in and picked up the slack, which is a primary reason the U.S. economy has continued to climb higher.



1. CNBC.com – Bumped, canceled and delayed: Airline passengers facing a rocky summer travel season
2. Cruise Lines International Association – Cruise Lines International Association (CLIA) reveals growth in global and North American passenger numbers and insights
3. Business Insider – Recession fears have hit an all-time high, a new Bank of America survey shows
4. ADP Research Institute – Workforce Vitality Report
5. CNBC.com – Workers at the lower end of the pay scale finally are getting the most benefit from rising wages
6. PYMNTS.com – Michigan University’s consumer survey shows economic rebound
7. CBS News – Global economy slowing much faster than expected
8. MarketWatch – U.S. Dollar Index (DXY)
9. US Inflation Calculator – Current US inflation rates: 2009-2019
10. Investopedia – The Great Recession
11. Business Insider – There hasn’t been this much risky corporate debt in years. The Fed is sounding the alarm about what that could mean for the economy.
12. NPR – U.S. national debt hits record
13. Bureau of Economic Analysis – Personal saving rate
14. J.P. Morgan – Guide to the markets 9/30/19
15. CNBC.com – U.S.-China trade deal coming soon? Big companies are not buying it

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