FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
January 10, 2017
1. US Consumer Spending Hit Nine-Year High in December
2. US Economic Confidence Matches Record High in December
3. Americans’ Investor Confidence Ends 2016 at Nine-Year High
4. Gallup’s US Job Creation Index Ends 2016 on High Note
5. US Conservatives Outnumber Liberals by Narrowing Margin
When the Commerce Department reported on December 22 that 3Q Gross Domestic Product increased at an annual rate of 3.5%, many of us in the forecasting business wondered if that figure might be too optimistic. We also wondered whether the economy could sustain a 3+% growth rate in the 4Q.
While we won’t get our first official look at 4Q GDP until January 27 when the government will release its “advance” estimate, there are several signs and stats which suggest the economy did in fact end 2016 on a strong note, certainly in November and December. We’ll look at some of that data as we go along today.
As I wrote in my Blog last Thursday, the Consumer Confidence Index rose to the highest level in over a decade in December at 113.7 versus a revised 109.4 in November. Most analysts believe the surge in confidence is due to the election of Donald Trump, but I believe part of it is also that millions of Americans will be happy to see President Obama leave office on January 20.
Along with the various economic stats we’ll look at below, there is a new survey from Gallup which shows that the percentage of Americans who identify as conservatives remains well above the percentage who identify as liberals. However, Gallup notes that liberals have been gaining on conservatives since 1996. Whatever your political leaning, you’ll find this interesting.
So let’s get started.
US Consumer Spending Hit Nine-Year High in December
Americans’ annual end-of-the-year holiday shopping spree boosted Gallup’s daily measure of consumer spending to the highest average for December since Gallup began tracking spending in 2008. The self-reported daily average spending of $105 is a $7 increase from $98 in November and a $6 hike from $99 last December.
The $105 average for December is also the highest for any month since May 2008 ($114), when spending was boosted by government-issued rebate checks designed to stimulate the economy.
The December average is based on more than 13,500 interviews conducted as part of Gallup Daily Tracking throughout December. Gallup asked Americans each night to report how much they spent the previous day, excluding normal household bills and major purchases such as a home or car. The measure gives a good indication of discretionary spending.
December marks the third consecutive month and the fifth month this year (including March and April) that the daily spending average has matched or exceeded the highest average for that month in Gallup’s trend. The $92 overall average for all of 2016 is still slightly below 2008’s average of $96, but higher than any year since.
Affluent Americans’ purchases helped drive last month’s rise in spending. Households with annual incomes of $90,000 or more increased their daily spending from an average of $146 in November to $170 in December, while those earning less than $90,000 averaged $82 in both months.
The best news from this survey was the fact that annual spending among lower income households, those earning $90,000 or less, increased more on a percentage basis than those making $90,000 or above. Households making less than $90,000 increased spending by 30% from January to December, while households above $90,000 increased spending over the same period by 27%.
US Economic Confidence Matches Record High in December
Americans ended 2016 with higher confidence in the US economy than they have expressed at any other point since 2008. Gallup’s Economic Confidence Index averaged +9 in December, up eight points from November. In the final week of December the Index averaged +11, the highest since Gallup has been tracking this data.
The record-high confidence is largely the result of increased optimism among Republicans after November’s election. Before President-elect Donald Trump’s victory, the Index score was negative in nearly all weekly and monthly readings Gallup has recorded since 2008, as you can see in the chart below.
Gallup’s US Economic Confidence Index is the average of two components: how Americans rate current economic conditions; and whether they feel the economy is improving or getting worse.
In December, 30% of Americans rated the economy as “excellent” or “good,” while 22% said it was “poor,” resulting in a current conditions score of +8. This was up from November’s +5 current conditions score and marks the highest reading for this component since 2008.
Americans’ Investor Confidence Ends 2016 at Nine-Year High
After reaching a nine-year high in the 3Q, the Wells Fargo/Gallup Investor Optimism Index rose further in the 4Q to its highest point since January 2007. The Index now stands at +96, up from +79 in the 2Q and from +40 in the 1Q when stock market volatility rattled investor confidence.
Reflecting the results of the 2016 presidential election, investor confidence zoomed 155 points in the post-election poll among investors who identify as Republican, from an Index score of 0 in the 3Q to +155 in the 4Q. Conversely, Democrats’ confidence fell by nearly as much, from +174 to only +25.
Of the seven elements that form the Optimism Index, investors were most confident in the 4Q about maintaining or increasing their income over the next 12 months — 69% were optimistic about this while 15% were pessimistic, for a +54 net optimism score.
Investors were nearly as hopeful about reaching their five-year investment goals, with 68% optimistic. Slightly fewer were optimistic about achieving their 12-month investment targets (58%) and in their 12-month outlook for US economic growth (57%) and stock market performance (54%).
The 4Q reading is based on telephone interviews conducted in late November with a nationally representative sample of 1,012 US investors who reported having $10,000 or more in stocks, bonds, mutual funds or a self-directed IRA or 401(k).
Gallup’s US Job Creation Index Ends 2016 on High Note
Hiring activity in US workplaces appeared to be strong in December, as Gallup’s US Job Creation Index remained at +33, matching the measure’s high since Gallup began tracking it in January 2008. The latest reading is up from +30 a year ago.
After bottoming out in 2009 amid the global financial crisis, US job creation has steadily improved — surpassing its pre-recession high of +26 in 2014. The Index plateaued in 2015 after years of steady gains, but managed to tick higher to its peak of +33 in May 2016. The Index has registered this same high score in nearly every month since.
Gallup’s Job Creation Index is based on employed US adults’ perceptions of their companies’ hiring and firing activity. Gallup asks a random sample of employed adults each day whether their employer is hiring new people and expanding the size of its workforce, not changing the size of its workforce, or letting people go and reducing the size of its workforce.
The resulting Index — computed by subtracting the percentage of employers letting workers go (10% in December 2016) from the percentage hiring (43%) — is a nearly real-time indicator of the nation’s employment picture across all industry and business