Consumers could spread some Holiday Cheer

Americans’ moods have dimmed, but the economy is still providing them with the wherewithal to spend

By guest author Justin Lahart from Wall Street Journal

Americans are not as chipper heading into the holidays as they were last year. That may not mean they are unwilling to spend, though.

The University of Michigan on Friday, November 8, 2019, reported that its index of consumer sentiment came in at a preliminary 95.7 for November, compared with 97.5 in November of last year and a 2019 high of 100 set in May. It followed on last week’s report that the Conference Board’s consumer confidence index fell to 125.9 in October from 137.9 a year earlier.

Neither reading counts as a signal consumer spending is going into hibernation, but they do show that moods have cooled. Small wonder, given the news on tariffs and politics lately. But when it comes to thinking about the holiday shopping season, it is probably better to pay attention to how people are doing rather than how they are feeling. And, they are doing pretty well.

Start with jobs. While hiring has moderated, job growth continues to outpace growth in the working-age population, and the unemployment rate has continued to fall as a result. Overall wage growth has been making slow gains, but more of it is being driven by wage gains among people who earn less.

Wages among full-time and salary workers at the top of the lowest decile—those who make less than 90 % of all U.S. workers—were up 7 % from a year earlier in the third quarter, according to the Labor Department. That matters because people who make less have a higher propensity to consume additional income. Also helping those lower-earning workers: Gasoline prices are down from a year ago, so less of their pay checks are going into the gas tank. The news for retailers that serve poorer consumers could be good this holiday season.

(caption courtesy by WSJ)

Meanwhile, plenty of people appear to have the wherewithal to spend over the holidays, if they choose to. The saving rate—the proportion of after-tax income not spent—was 8.1% in the third quarter, according to the Commerce Department, compared with 7.5% a year earlier. Indeed, the only time the saving rate was meaningfully higher in the past 25 years was in 2012, when incomes received a temporary boost from companies pulling forward dividend and bonus payments to beat a tax increase.

Investors do not seem to have set a very high bar for the holidays—retail stocks have been a mixed bag this year, but in general the sector has underperformed the broader market. Retailers themselves seem optimistic, however, and stepped up hiring in October compared with a year earlier, Deutsche Bank economists note.

However people think they feel, here is guessing the spirit is about to move them to spend.