Consumer Payment Card News

Consumer Economic Outlook Brightens in July – Maybe Temporarily?

U.S. Consumer Economic Outlook

The consumer economic outlook showed signs of a rebirth in July following two months of the doldrums. All consumer indices showed upticks in short-term confidence. This brightening in the outlook comes at the same time as the U.S. enters the longest economic expansion in its history.

July is the 121st consecutive month of gross domestic product growth since the Great Recession, breaking the record of 120 months of economic growth between March 1991 and March 2001.

However,consumers view higher inflation as a threat to economic growth. Higher inflation was related more frequently to rising interest rates and was associated with higher unemployment expectations.

Moreover, small biz owners recently turned pessimistic citing the continued difficulty of finding qualified workers, difficulty in planning inventories, and likelihood of interest rates rising, as significant factors.

This year, consumer optimism has been erratic driven by the trade tariff trash talk, government shutdown, a mind blowing U.S. spending deficit, fears of inflation and interest rate hikes, notes Robert McKinley, Senior Analyst for CardTrak, CardFlash and CardData.

Considering the current historic U.S. expansion may become unsustainable over the next two years and as the global economy softens, there remains a significant threat of an abrupt recession.

National Consumer Confidence

The Conference Board Consumer Confidence Index reversed course in July, following a decrease in June. The Index now stands at 135.7, its highest level this year, down from revised 124.3 in June, its lowest level since September 2017. The Present Situation Index, based on consumers’ assessment of current business and labor market conditions, and the Expectations Index, based on consumers’ short-term outlook for income, business and labor market conditions, increased significantly in July, following upticks in the prior month.

Lynn Franco, Senior Director of Economic Indicators at The Conference Board, explains the high levels of confidence in July should continue to support robust spending in the near-term despite slower growth in GDP.

Other Conference Board findings for July: Consumers’ appraisal of current-day conditions improved in July; consumers’ assessment of the labor market was also somewhat more upbeat; consumers were more optimistic about the short-term outlook in July; and consumers’ outlook for the labor market was also slightly more favorable.

National Consumer Sentiment

The preliminary July Survey of Consumers, by the University of Michigan, reports its Index of Consumer Sentiment (overall) was flat compared to June, up a tiny 50 basis points. The Index of Current Economic Conditions remains down nearly 3% from one-year ago. The Index of Consumer Expectations surprisingly reversed from a YOY decline of more than 5.0% in June, to a gain of more than 3% YOY in July.

The University of Michigan notes the most interesting change in the July survey was in inflation expectations, with the year-ahead rate slightly lower and the longer term rate moving to the top of the narrow range it has traveled in the past few years. Given the heightened interest in Fed policy, it is of some interest to examine the relationship between consumers’ inflation expectations and the anticipated strength in the economy as well as prospective shifts in interest rates and unemployment.

The Consumer Expectations Index falls as inflation expectations rise, signifying that consumers view higher inflation as a threat to economic growth. Higher inflation was related more frequently to rising interest rates and was associated with higher unemployment expectations. While the inflation-unemployment relationship is in the opposite direction of the Phillips curve hypothesis, that relationship is usually based on wage inflation, not overall inflation. Consumers’ views appear to be more consistent with the stagflation thesis, which holds that inflation and unemployment move in the same direction. This thesis is more consistent with how consumers process and organize diverse bits of news about the economy.

Florida Consumer Pulse

After reaching its highest level in 17 years, consumer sentiment among Floridians has been wobbly, at best, this year, dipping in June, then recovering some ground in July. In June the University of Florida Consumer Sentiment Index declined more than 5 points, the biggest drop since May 2015. In July, the Index rose 3.7 points.

In June all five components of its Index declined. In July all five components of its Index increased.

Floridians’ opinions of their personal financial situation in July compared with a year ago increased 3.6 points, though opinions varied greatly by demographics; male respondents and those under age 60 reported less- favorable opinions. Similarly, opinions as to whether now is a good time to buy a major household item like an appliance increased, though men reported less-favorable opinions.

Florida’s labor market has continued to strengthen with solid job gains statewide and has led to an unemployment rate of 3.4% in June. Compared with a year ago, the number of jobs increased by 218,800 in June, an increase of 2.5%. Among all industries, education and health services gained the most jobs, followed by professional and business services, leisure and hospitality, and construction. The information industry was the only sector losing jobs.

Small Business Pulse

The latest small business survey from the National Federation of Small Business (NFIB), reveals small business optimism sank 1.7 points in June. Six components of the NFIB’s Small Business Optimism Index declined, three were improved, and one unchanged.

Both capital spending plans and reports of actual spending fell in June. The inventory component strengthened in June with owners saying existing inventory stocks were lean and planning to add to them. Sales and earnings trends softened, while expected credit conditions remained favorable.  More owners expect credit conditions to tighten rather than ease by a two-to-one margin, with most expecting no change.

Thirty-six percent of all owners reported job openings they could not fill in the current period, down 2 points from May. Reports of higher worker compensation fell 6 points to a net 28% of all firms. Plans to raise compensation fell 3 points to a net 21%.

More than half of owners reported hiring or trying to hire employees, down four points from last month, but 50% reported few or no qualified applicants for the positions they were trying to fill, according to the June NFIB Jobs Report.

U.S. Consumer Credit

U.S. revolving credit, mostly credit card debt, made a sharp rebound for the second consecutive month in May, jumping by an annual growth rate of 8.2%, after surging 7.9% in April, in the wake of a 2.3% YOY (year-on-year) decline in March. The YOY gain is the highest monthly gain in more than five years.

For April and May, Americans added $14.2 billion in consumer revolving debt (97% credit card debt), with a total increase of $18.2 billion for the first five months of 2019, according to tabulations by CardData.

The YOY growth rate of consumer revolving debt for May posted at +8.2%, compared to a revised 7.9% YOY gain for April, and a revised 2.3% YOY decline for March, according to figures from the Federal Reserve.

On a quarterly basis revolving consumer credit grew at an annual revised rate of 1.5% in the first quarter of 2019, compared to a revised annual rate of 0.7% in the first quarter of 2018.

Looking at U.S. revolving consumer credit, on an annual basis, the revised growth rate for 2018 was 3.1%, compared to 5.6% for 2017; 6.8% in 2016; 5.4% for 2015; and 3.9% for 2014. The annual growth rate for 2019 may very well end around 3.6% YOY, according to analysis by RAM Research.

Total revolving consumer credit outstandings stood at $1071.7 billion for May, compared to a revised $1064.5 billion for April, and a revised $1057.5 billion for March.