Thursday, January 6, 2011

Where is the Consumer in 2011?

Financial FAQs

Consumers are waking up in 2011. Incomes and spending are rising, helped by more jobs and so much fiscal and monetary stimulus in the pipeline. Both the industrial and service sectors are now in a long term expansion, while the public is beginning to borrow again—mainly for vehicles, as they continue to cut back on revolving (credit card) debt.

Consumer credit expanded $3.4 billion in October, following a $1.2 billion rise in September.  Outstanding credit has not risen for two consecutive months since mid-2008. The latest rise was led by a $9.0 billion boost in non-revolving credit, following a $10.1 billion jump in September.  Both months reflect healthy motor vehicle sales.


Whereas revolving credit, a category centered in credit cards, continues to contract, down $5.6 billion in October following September's $8.8 billion drop. The decrease in revolving credit means consumers are not pulling out the plastic for purchases—disappointing news for retailers.

Motor vehicle sales have soared back to 2008 levels, and look to climb further in 2011. Consumer spending continues to be concentrated in vehicle sales, which rose two percent in December to a 12.6 million annual rate vs 12.3 million in November. The year-on-year rate for unit (fleet) sales is plus 13.5 percent, roughly double the rate for regular store sales.


And the non-manufacturing economy, with the exception of employment, is really picking up steam, following the ISM’s Manufacturing survey. The ISM's service sector index rose to 57.1, up more than two points from November for a new recovery best. New orders show a rare plus 60 reading, at 63.0 for a more than five point jump and also a recovery best. Business activity, which includes quoting activity, jumped 6-1/2 points to a recovery-best 63.5.


But job gains are still minimal according to the ISM's sample that is not validating this morning's big jump in ADP's data. The ISM non-manufacturing employment index slowed by more than two points to a 50.5 level that indicates very little month-to-month improvement. The nation's businesses, at least based on the ISM's sample of roughly 350 companies, continue to do more with less. Today's report points to strong growth for the economy that will, hopefully sooner than later, trigger new hirings.


The ADP survey, a monthly private payrolls survey that tends to mirror the U.S. Labor Department’s payroll survey, is calling for a gigantic 297,000 surge for December private payrolls, a gain that is far outside high-end expectations.

The ADP national employment report is computed from a subset of ADP records that in the last six months of 2008, represented approximately 400,000 U.S. business clients and approximately 24 million U.S. employees working in all private industrial sectors. So look for Friday’s U.S. Labor Dept. employment report to also be strong.

Harlan Green © 2011

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