Macro Wrap – The Almighty U.S. Consumer

by Enis January 24, 2013 7:46 am • Commentary

The U.S. consumer accounts for more than 70% of U.S. GDP, and U.S. GDP is more than 25% of global GDP, so the U.S. consumer’s spending alone accounts for more than 15% of global growth each year.

The strength of U.S. consumption has been impressive over the past 3 years.  Last week though, the UMich consumer confidence index hit a 1 year low.  The payroll tax hike might be already affecting the profligate U.S. consumer.

Here’s a good chart from Credit Suisse research, by way of the HumbleStudentoftheMarket blog, showing the potential impact of the payroll tax hike on the average American’s paycheck:


Screen Shot 2013-01-24 at 7.33.54 AM



The average weekly earnings essentially gets cut back to Jan 2012 levels, offsetting all of the wage growth over the last year.  Given that the savings rate is already near 0 to begin with, incremental spending growth from the U.S. consumer can only be financed by taking on more debt.  That’s certainly possible, but the U.S. consumption situation is likely to be more volatile this year.  Maybe U.S. consumers actually cut back a bit on spending, though history has shown that only the most dire circumstances causes Americans to close their pocketbook.

Regardless, one broad theme that I expect to emerge over the course of this year is weakness in U.S. consumer spending relative to historical growth patterns.  The one outlier to this theme could be U.S. housing and related spending (like autos), which are majority financed by credit, which is very cheap.  But cash-out-of-the-wallet spending?  That could be at risk.

Markets overnight:

  • Focus is obviously AAPL earnings, with the stock down 9% in the pre-market after terrible guidance.  Global markets held up overnight, not extrapolating the miss to any economy-wide problems.
  • Asian markets mixed, with Japan up and China down.  Chinese PMI a touch better.
  • Europe down 0.25% in a quiet session.  SPX futures down 0.2% as well.
  • The dollar and Treasuries stronger, commodities weaker except for oil.
  • Jobless claims data out at 8:30 am EST, Preliminary U.S. PMI around 9:00 am, Leading Indicators at 10:00 am, and Kansas City Manufacturing data at 11:00 am