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Brian Wesbury
Chief Economist
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Bob Stein
Deputy Chief Economist
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| Personal income was up 0.4% in May |
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Implications: Consumer spending continues to grow, not because of government handouts but because incomes are rising in the private sector. In the past three months, "real" (inflation-adjusted) consumer spending is up at a 2.8% annual rate. Meanwhile, real personal income excluding government transfer payments (such as unemployment insurance, Social Security, and Medicare) is up at a 4.7% rate. Earlier this month retail sales were reported -1.2% and some analysts used this to say we were in a "soft patch." What they missed is that spending on services is rising rapidly and auto sales were better than the retail report suggested. We expect continued healthy growth in consumer spending. The financial obligations ratio measures the share of after-tax income that consumers need to make recurring payments (mortgages, rent, car loans/leases, student loans, credit cards,...etc.). This ratio peaked at 18.9% in early 2008 and is now down to 17.4%, very close to the 30-year average of 17.2%. In particular, the obligations of renters are the lowest since 1993 and the consumer (non-mortgage) obligations of homeowners are the lowest since 1995. Only mortgage obligations remain elevated, and those are falling quickly relative to income. A combination of higher incomes and a smaller share needed to service our obligations means consumers have more money to spend.
Click here to view the entire report.
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These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
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The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
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