Consumer Spending Continues to Improve

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The most recent retail sales show consumers continue to spend, as consumer borrowing is increasing. Add to that credit card delinquencies are at an 18-year low, according to credit reporting company Transunion Corp., and we have a picture of an improving economy.

"The national credit card delinquency rate continues to remain at the lowest levels we've observed in 18 years," said Ezra Becker, vice president of research and consulting in TransUnion's financial services business unit. "It's a positive situation because average borrower balances have increased over the past year as new card originations have grown."

Retail sales soared in July. Total sales rose 0.8 percent for the strongest rise since February with ex-auto sales also up 0.8 percent for, again, the best showing since February. All components show gains including motor vehicles, general merchandise, health & personal care, furniture, and restaurants. Clothing also shows a significant gain, one that points to strength for the back-to-school season. Ex-auto ex-gas the gain is 0.9 percent for the best showing since January, said Econoday.

Graph: Econoday

This was predicted by the surge in consumer borrowing. Total credit outstanding rose $6.5 billion in June, following a $16.7 billion jump the month before, reported the Federal Reserve. The latest gain was led by non-revolving credit, gaining $10.2 billion in June after a $9.2 billion rise in May. Non-revolving credit is mostly for motor vehicle purchases and student loans. 

Graph: Econoday

What is behind greater consumer spending is they continue to improve their financial position. Personal income in June gained 0.5 percent, following an advance of 0.3 percent the prior month.  The wages & salaries component also showed strength, rising 0.5 percent after a 0.1 percent rise in May.

Graph: Econoday

And with 163,000 net payrolls jobs added in July, their condition should continue to improve. Both the goods-producing and service-providing sectors added jobs. Goods-producing jobs indicate that manufacturing is doing better than monthly surveys suggest.  Total goods-producing jobs rose 24,000 in July after a 13,000 gain the prior month.  Manufacturing rose 25,000 after a 10,000 boost in June.

So even the drag from Europe’s austerity-induced recession hasn’t kept American consumers down. Even housing is showing signs of life, with the NAHB’s builder confidence survey at its highest level since February 2007, which should boost consumer confidence even higher.

Harlan Green © 2012