Digging into the Data – A Holiday Shopping Economic Bump

October consumer spending and incomes both increased 0.2%. After an upward revision to Q3 GDP to 3.9% from 3.5%, these results were lower than expectations and may portend a soft holiday shopping season. On the surface, consumers appear to be matching spending with income growth, but digging into the data we see two bullish economic indicators. First, as we wrote a few weeks ago, oil prices have dropped precipitously and the impacts are starting to flow through Personal Consumption Expenditure (PCE) Deflator data. October’s PCE Deflator rose only 1.4% year over year. The gasoline and other energy goods subcomponent of PCE decreased 6.3%, indicating lower energy prices are reducing inflationary pressures and potentially freeing up consumer dollars to be spent elsewhere in the economy. There is another prescient data point hidden in the Bureau of Labor Statistics October Nonfarm Payrolls report. Buried deep in the establishment survey data is retail trade employment. This data subcomponent shows that retailers added 1.6% more jobs (seasonality adjusted) year over year and exceeded the prior all-time high reached back in 2007. The October retail trade employment reading is a good indicator of retailers’ expectation of holiday sales – more retail hiring equals more associates to sell goods and ring them up on the cash register. Even though the U.S. consumer looks constrained, retailers are planning on a good holiday shopping season, and lower energy prices are freeing up dollars to spend on other discretionary items.
Sources: NPR’s Nightly Business Report; Bloomberg New, U.S. Department of Labor & U.S. BEA