The American consumer has returned in full force.
Consumer spending has climbed 0.6 percent in the last two months, according to figures from the U.S. Commerce Department. Households have splurged on major appliances, 4x4’s, televisions and clothing, boosting the economy at the fastest pace in 11 years.
According to Michael Gapen, the New York-based chief U.S. economist for Barclays Plc., “We have very solid momentum entering 2015.” He added, “Labor markets are doing better, the consumer has a more favorable outlook for the economy and their own incomes, and they’re acting on it.”
With positive employment numbers, the biggest since 1999, and the lowest gasoline prices in five years, Americans are positive on the nation’s economic expansion and believe that the recession is finally subsiding. A substantial growth in America would go a long way in stabilizing a global economy struggling to find a balance as Europe continues to plod along and emerging markets cool down.
GDP
According to revised Commerce Department figures, U.S. gross domestic product grew at a 5 percent annualized rate from July through September, the biggest advance since the third quarter of 2003 and up from a previously estimated 3.9 percent. Stocks moved up, sending the Dow Jones Industrial Average above 18,000 for the first time and the Standard & Poor’s 500 Index climbed 0.2 percent to 2,082.17 at yesterday’s close.
The report also showed that incomes advanced 0.4 percent last month, a result of increased wages and salaries as employment improved and more people returned to the work force.
Today’s GDP report also showed that household purchases, which account for almost 70 percent of the economy, increased at a 3.2 percent annual rate in the third quarter of 2014 compared with a previously reported 2.2 percent. The adjustments reflect stronger spending on health care, recreation and financial services. Outlay on durable and non-durable goods was also adjusted.
“Consumer spending in particular looks like it’s on a pretty good track right now,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “Energy prices are down; labor markets have good momentum, so we’re in pretty good shape heading into 2015.”
Economists at Morgan Stanley in New York were among those projecting that the spending gain this quarter will exceed 4 percent, which would mark the strongest quarter since at least 2010.
Purchases of durable goods, including automobiles, climbed 2.3 percent following a 0.4 percent advance while spending on non-durable goods rose 1 percent, the most since September 2013, reflecting gains at clothing retailers and service stations. That reflects that cheaper gasoline is prompting Americans to take to the road more.
Regular gasoline at the pump sold at an average $2.38 a gallon as of Dec. 22, down $1.32 from a high this year in April, according to AAA, the biggest U.S. auto group. The cheaper prices at the pump is freeing up money for people to spend elsewhere.
Disposable income climbed 0.5 percent in November from the prior month, up 2.9 percent over the past 12 months, the biggest year-to-year gain since December 2012.
Housing
On the housing front, data continues to show an industry struggling to gain traction even with super-low mortgage rates. Sales of new houses unexpectedly dropped in November to a 438,000 annualized rate, the lowest since July. The pace for October was also revised down. Economists remain optimistic that housing will soon show more decided improvement along with other forms of consumer spending as low borrowing costs, gains in hiring and a growing population revive demand.
In fact, gains in hiring will be a key factor in the Federal Reserve makers’ decision whether or not the economy is strong enough to warrant raising their benchmark interest rate. Central bank officials on Dec. 17 said they would be “patient” on the timing of the first interest-rate increase and expect inflation to rise gradually toward their goal.