The Consumer Is Spending, A Major Driver To The Economic Recovery

As is often said actions speak louder than words and with the consumer at the moment, both survey results and spending activity are moving in the same direction. The consumer accounts for 70% of GDP or the economy, so as the consumer goes, so goes the economy. Today's Conference Board Consumer Confidence reading for March is reported at 109.7, up from 90.4 in the previous month. Consumer confidence has yet to reach the higher pre-pandemic level, but it is moving up from its low after not declining as much as it did during the financial crisis. CEO confidence on the other hand is near a record high.

Two big ticket purchases for the consumer are a home and an automobile. In the first chart below, home sales are near a record level at an annual rate of 6.2 million. Limiting higher home sales and pushing sale prices higher is record low housing inventory. On the same chart below homes available for sale are a record low 1 million units.

The next chart below shows unit vehicle sales have returned to near pre-pandemic levels at 16.1 million units. As is the case with housing, auto inventories are running at low levels relative to sales with the auto inventory to sales ratio also near a record low of 1.9:1. in addition to the demand for automobile purchases, the recent computer chip shortage is limiting new car production.

This last chart on retail sales shows the sharp recovery, a 'V-shaped' recovery, that has occurred with broader retail sales. The February retail sales of $561 billion is significantly above the February pre-pandemic level of $527.5 billion.

With the consumer seemingly not limiting spending, they seem to be in decent financial shape too with the household financial obligations debt service level as a percentage of disposable income at 14.7%. This is down sharply from the financial crisis level of 18.1%.

And lastly, with many consumers sitting at home through the pandemic, some spending has been delayed, like travel and leisure, for example. The end result is consumer have been saving more of their disposable income; hence, building up saving dollars, some to be spent as more of the economy is reopened.

In summary, an important element to economic growth is the consumer and by many measures, the consumer is in good shape financially. This should lead to continued growth in the economy as the year unfolds, all else being equal.