Wednesday, November 1, 2017

Happy Days for US Consumers

We live in happy times. How can that be given all the unhappy happenings in DC these days? Apparently, we are all tuning out the political static and focusing on what matters most: jobs. While our politicians continue to promise policies that will create more jobs, we are doing just that despite Washington. As a result, consumer confidence is soaring. Consider the following happy developments:

(1) Consumer confidence. Both the Consumer Sentiment Index (CSI) and the Consumer Confidence Index (CCI) jumped in October. I focus on the average of the two, which we call the “Consumer Optimism Index” (COI). During October, the overall COI jumped to 113.3, the highest since December 2000. Its current conditions component rose to 133.8, the highest since March 2001, while its expectations component rose to 99.8, its best reading since January 2004.

(2) Availability of jobs. Among the plethora of series included in the CSI and CCI surveys of consumer confidence, our favorites are the jobs plentiful, jobs hard to get, and jobs available series from the latter source. During October, 36.3% of respondents agreed that jobs are plentiful, the highest reading since June 2001. The jobs-hard-to-get percentage fell to 17.5%, the lowest since August 2001. It tends to be highly correlated with the unemployment rate, and suggests that the jobless rate is still falling.

(3) Wages. In the past, there was a reasonably good correlation between wage inflation and the jobs plentiful series This was so using the yearly percent change in either average hourly earnings or the Employment Cost Index (ECI). The latest data show that average hourly earnings for production and nonsupervisory workers rose 2.5% y/y during September, while wages and salaries in the ECI rose 2.6% during Q3. Both remain surprisingly low given the plentitude of jobs.

So why are consumers so happy? Jobs are plentiful and wages rising faster than prices. The PCED rose 1.6% y/y during September.