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Midyear Outlook

Global Growth | U.S. | July 2015
Consumers, Start Your Engines!

Spending Has Disappointed, but U.S. Consumers Appear Poised to Open Their Wallets

“Assuming that the economy accelerates through the remainder of 2015, the U.S. unemployment rate will likely continue falling. If the Federal Reserve remains on the sidelines, or tightens monetary policy gradually, the unemployment rate could keep falling for perhaps another year or two. This should have positive implications for consumer spending.”

Darrel Spence
Darrell R. Spence Economist 24 years of experience (as of 12/31/16)

Consumers Have Been Taking Their Windfall to the Bank, but Rising Wages Should Support Spending

Chart shows consumer savings and spending on gasoline from January 2014 through March 2015

Source: U.S. Bureau of Economic Analysis via FactSet.
*First half of 2014.



While sentiment has been fairly positive, the “tax cut” consumers received in the form of a decline in gasoline prices has not yet translated into increased consumer spending. Instead of spending, consumers appear to be saving and paying down debt. Research suggests that the steady decline in monthly spending on gasoline that began in late 2014 was accompanied by a similar increase in personal savings.

There is precedence for what has occurred. Our research indicates that in prior non-recessionary periods, large declines in gasoline prices have initially been offset by increases in consumer savings. However, following these short-term upticks in savings, consumer spending does begin to accelerate. Given this, we anticipate that consumers will trade trips to the bank for outings to the mall in the second half of the year.

There are additional reasons to think consumer spending will accelerate, including a healthy job market. Initial claims for unemployment insurance are near a record low as a share of the labor force and the job openings rate is approaching a level not seen in nearly 15 years, when the unemployment rate dipped below 4%. Importantly, there is upward pressure on labor costs, with the Employment Cost Index (ECI) for wages and salaries accelerating in the first quarter.

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