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Strength in consumer spending drives US growth

Stephanie Johnson

Jeffrey Lacker's perspective on the US economy's economic outlook (Part 5 of 12)

(Continued from Part 4)

Household spending in the US

In the US (SPY) (IVV), household spending represents about 68% of the gross domestic product, or GDP. In comparison, household spending represents 34% of the GDP in China (FXI), 56% in Germany (EWG), 60% in India (EPI), and 52% in Russia (RSX).

Consumer behavior is the prime determinant of household spending. It’s critical to headline growth. With respect to spending, consumer behavior is guided by indicators like price level, employment, wage growth. The price level is also known as inflation.

Growth in consumer spending

In the US, consumer spending grew at an average annual rate of 2.4% since the end of the recession. It grew at a rate of 2.8% in the past year. With a 4.3% growth rate, consumer spending reported a major uptick in the six months up to November 2014. It recorded the highest six-month growth rate since 2005.

The recent increase in consumer spending in the US is evident due to:

• An increase in real disposable income over the past year
• A decline in the personal savings rate
• An increase in consumer confidence

Gallup’s US consumer spending measure

If you look at the above chart, the self-reported US daily consumer spending measure, as assessed and reported by Gallup, has been increasing since 2009. The survey results show that from an average $72 spent “yesterday” in stores, restaurants, gas stations, or online by Americans, the measure has now increased to $98. This is a 36% rise.

Recovering consumer confidence

Consumer finances improved in recent years. This should also bolster growth. The value of household assets increased by 38% since early 2009.  Household liabilities fell slightly over the same time period.

Continue to Part 6

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