Gallup: Consumer Spending Back on Track
Americans’ self-reported daily spending for the month of August was the highest Gallup has measured in any month since the $99 reading in September 2008. Rising to $95 from $89 in July, consumer spending finally broke through the three-month long period in which Gallup’s spending measure remained generally unchanged, a phenomenon that indicated to economists that consumers were generally keeping purchases to their immediate necessities.
Consumer spending, which accounts for approximately 70 percent of the United States gross domestic product, is now more important than ever. Since government and business spending have remained weak, the economy is depending even more on household spending to fuel growth. “Nothing looms larger than the health of the consumer in a second-half [economic] pickup,” economists at Citigroup wrote in a research note early last month.
However, the still stubbornly high unemployment rate, stagnant wages, and higher payroll taxes have kept many consumers cautious in the past few months, a fact that second quarter GDP made obvious, despite last week’s revision.
Yet, marginally higher spending in August is indicative that consumer spending could finally be picking up, as analysts have predicted for the later half of this year. While Gallup’s data may not be as conclusive as the Department of Commerce’s retail sales data, which will be released next week, the self-reported consumer spending numbers add the personal element that the government’s retail figures do not.
The behavioral characteristics revealed through the self-reported data provides economists with earlier and unique insights into how Americans’ discretionary spending responds to changes in the economic climate. ”Consumer spending has been making a comeback this year, according to Gallup’s daily spending estimates, highlighted by August’s numbers, which are the strongest in five years. Improved spending is the surest way for the economy to return to health, given how reliant the U.S. economy is on consumer activity,” wrote Gallup’s Jeffrey M. Jones in Tuesday’s release of last month’s figures.
“The August increase in Gallup’s spending measure is a positive sign for the economy after Gallup and government spending estimates suggested little spending growth in July. A key to keeping up the positive momentum is whether Americans pull back in September or continue to spend at higher levels.”
Gallup’s data has shown that consumer spending has generally been trending upward since late 2012, a positive sign for the U.S. economy because between 2009 and November 2012 the monthly averages were consistently below $80. That period became known as the “new normal” in spending and it was linked to the sluggish economy and high unemployment rate. It was also a dramatic change from 2008 — the first year in which Gallup conducted this survey — when each monthly reading exceeded $80 and four months of the year showed spending above $100.
One concerning statistic contained in report was that spending in August was more robust in the first part of the month than in the later part. In fact, from August 1 through August 1, spending averaged $103 while it dropped to $89 for the second half of the month.
Even though a reading of $89 is higher than the spending average of $88 recorded so far in 2013, the dip partway through the month puts into question whether spending will continue to increase in September. It should be noted that August is typically a profitable month for retailers due to back-to-school shopping.
The report also pointed toward the split economy that Telsey Advisory Group senior research director Joe Feldman described to CNBC. Stagnant wages and higher payroll taxes have affected spending for lower-income earners as the recent disappointing earnings reports from retailers like Wal-Mart and Target made clear, but rising home values have given homeowners more equity, and combined with the modest gains made by the labor market, put other Americans in a better position to increase their outlays. “You’re seeing a bit of a split economy where that lower income consumer has been under a lot of pressure but the higher end is doing OK,” Feldman said.
Segments of the American population that generally report higher spending levels, like upper-income earners, parents, men, and those between the ages of 30 and 49, all reported higher spending levels in August than in July. In addition, even though their spending was not as high, middle- and lower-income Americans and those with no children under 19 reported at least marginally higher spending.
Other evidence suggests that while consumers appeared to be feeling better about the economy at the end of August than they did at the beginning, they are still struggling to remain upbeat about the sluggish economy. According to Thomson Reuters/University of Michigan’s final reading, consumer sentiment improved to 82.1 in August compared to a preliminary reading of 80 earlier in the month.
However, it was still lower than July’s final reading of 85.1 — the best level for consumer sentiment in six years. During the last recession, the index averaged slightly above 64. In the five years before the financial crisis, it averaged almost 90. Consumer sentiment is one of the most popular measures of how Americans rate financial conditions and attitudes about the economy.
“Most of the late August gain was due to more favorable income expectations, with consumers expecting the largest income gains in nearly five years, although the median expected increase was just 0.9 percent, less than the expected rate of inflation,” survey director Richard Curtin said in a statement.
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