Why is consumer confidence down, and why are consumers saving more? Every month, Debbie and I derive the Consumer Optimism Index (COI) by averaging the Consumer Sentiment Index and the Consumer Confidence Index.
The overall COI rose to a cyclical peak of 101.0 during January 2015. It was down to 91.6 last month. The COI’s present component remains near its recent cyclical high, but the expectations component is down sharply from its cyclical peak of 94.0, also during January 2015, to 78.5 currently. Over this same period, payroll employment has increased 3.2 million and the pump price of gasoline has dropped 6%, following a 29% drop during 2014.
Why is the 12-month sum of personal saving up $73 billion to $684 billion since June 2014? On a per-household basis, personal saving is up $547 to $5,823 at an annualized rate over this period. That suggests that consumers might have saved almost half of their gasoline windfall, which has been $1,302 per household at an annualized rate since June 2014 through March of this year.
The broadest measures of consumers’ well-being are at record highs. Real total and disposable personal incomes per household were there during March with y/y gains of 2.9% and 2.7%. Real consumer spending per household rose 2.2% y/y through March also to a record high, of $97,078. Previously, we’ve argued that the annual income measures used by naysayers to claim that the standard of living in America has stagnated for the past 15 years are flawed and misleading for a number of reasons.
So what’s the matter? Could it be that the Democrats and Republicans are about to give us a choice between two of the most unpopular presidential candidates in history? Yes. Could it be that ObamaCare has caused health insurance premiums, deductibles, and co-pays to soar? Yes. Could it be that historically low interest rates are forcing consumers to save more? Yes. Could it be that many individual investors are depressed that they didn’t put more money into stocks a few years ago, and now deem them to be too expensive and risky? Yes.
It may be that all these concerns are weighing on consumer confidence and spending. They seem to be weighing more on older Americans. The Consumer Confidence Index (CCI) is available for three age groups: under 35 year olds, 35-54 years old, and 55 and older. The youngest group has the highest CCI, which just about matches the previous cyclical high during 2006. The middle-aged group has the second-highest CCI, which has stalled out over the past year below the previous cyclical high. Older Americans have the lowest CCI of the three, and it has been trending downwards over the past year. Speaking on behalf of this group, I think we are older and wiser.
Dr. Ed Yardeni
is the President of Yardeni Research, Inc., a provider of independent global investment strategy research.
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