Why Are Consumers Happier?

Financial FAQs

Why are consumers much happier during these holidays? The University of Michigan's consumer sentiment index for November jumped 6.6 points to a six-month high while the Conference Board's consumer confidence index jumped 6.3 points to 107.1 for its best reading of the cycle, since July 2007.

 Graph: Econoday

It has to be in part the record-low November unemployment rate of 4.6 percent for starters, and rising wages now that minimum wages are rising in major metropolitan areas, as well as whole states like California and Washington. Econoday says the second Q3 GDP growth estimate included a sizable upgrade for consumer spending, up 7 tenths to an annualized and inflation-adjusted 2.8 percent. This is down from the second-quarter's 4.3 percent rate but the average of these two is the best in nearly two years.

It’s in the service sector that employment is growing fastest. In another sign of strength for the economy, the ISM non-manufacturing index jumped 2.4 points in November to a 57.2 reading that tops most forecasts.

Employment for the ISM survey, where growth was soft in October, shot more than 5 points higher to an outsized 58.2. Averaging recent scores for this reading puts the trend at a softer but still very respectable mid-50s rate. New orders are very strong, at 57.0, with export orders also at 57.0 in a reminder of the importance of foreign demand for the nation's service sector. Business activity is a highlight of November's report at 6l.7.

This is one reason boosting minimum wages is so important. Most jobs are being created in the lower-paying service sector, which now employs some 80 percent of workers, and has been a major reason for the tepid 2 percent growth rate average of the economy since the end of the Great Recession.

Manufacturing has been hit hardest, and there is some doubt that Prez-elect Trump will be able to fulfill his promise to bring manufacturing jobs back that were lost. So we will have to rely on the non-manufacturing industries listed below for future growth in jobs and wages.

“The 14 non-manufacturing industries reporting growth in November in the survey said Anthony Nieves, CPSM, C.P.M., CFPM, chair of the Institute for Supply Management® (ISM®) Non-Manufacturing Business Survey Committee. — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Retail Trade; Arts, Entertainment & Recreation; Transportation & Warehousing; Other Services; Management of Companies & Support Services; Construction; Finance & Insurance; Professional, Scientific & Technical Services; Accommodation & Food Services; Information; Health Care & Social Assistance; Wholesale Trade; and Mining. The two industries reporting contraction in November are: Real Estate, Rental & Leasing; and Public Administration.”

That’s why economists and the Fed believe it is more important to look at the personal income and consumption expenditure figures in such as the Econoday graph above to know where future growth in incomes (and higher demand) will come from.

Harlan Green © 2016

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