Superlative Spending, Plummeting Petrol & Marital Money
Consumer spending increased 0.4% in November, the ninth straight monthly rise. From 11/1/18-12/24/18 sales rose 5.1% Y-o-Y. Wages are up 3%/year, the fastest pace in over a decade. Moreover, capital expenditures by firms, while not growing, are not meaningfully declining. Lastly, government spending, despite the shutdown, will remain a positive force. Unless market turmoil causes consumers, the growth driver of the US economy in 2019, to curtail spending, we’re OK.
As recently as 2010, cheap oil was great for the US as oil production was low. However, due to fracking, US production has doubled since 2010 to 11.6 million bbl/day. Lower prices reduce corporate investment which leads to reduced employment. But due to productivity gains, oil field expenditures have declined along with employment; from 200,000 persons in 2014 to 150,000 today. Today, net net, cheaper oil is a mild stimulant.
While unionization has always been low in the US compared to other advanced democracies, trends are similar. Back in 1980, the unionization rate in OECD nations was about 50%; it’s now 18%. In the US, the rate has fallen from over 30% in 1960 to 10% today. Why? Better pay and working conditions, and a reduction in capital-intensive industries like mining, manufacturing, and newspapers, where workers have leverage over employers.
In China, the key private sector index that looks at manufacturing showed activity shrinking in November, the first time since 5/17, and the official government index showed the same, the first time since 2/16. Here in the US, all five Federal Reserve manufacturing indices (Dallas, Kansas City, New York, Philadelphia and Richmond) weakened in November; two shrank. Nothing ominous here, the service sector is fine, but manufacturing growth is slipping.
Pending home sales have declined Y-o-Y for 11 straight months, existing sales peaked in 11/17, existing inventory has been rising Y-o-Y for four straight months, and appreciation has been slowing for six straight months. Starts have been flat since 11/16, new sales have been falling since 11/17, and new inventory has risen from 4.9 months in 11/17 to 7.4. In 2019, starts and sales steady, appreciation slows, and inventories rise.
While wages of men and women with at least a HS diploma are similar early in life, they diverge dramatically with age. The gap peaks at about age 50 with men earning about $76,000/year and women earning about $49,000/year. However, at all ages there is no gap between single women, single men and married women. Married men, however, earn much more and are the cause of the entire gap.
Source: Elliot Eisenberg, PhD., Chief Economist for GraphsandLaughs, LLC, an economic consulting firm serving a variety of clients across the United States. All rights reserved.