Economic Update: Consumer Behavior

Economic Update: Consumer Behavior

The popular consumer sentiment index from the University of Michigan deteriorated again last month, falling to the lowest level in a decade, but we continue to believe this is not the most accurate measure of how Americans actually feel at the moment.

For starters, taken at face value the latest index reading would imply that consumers are generally more pessimistic now than they were during the peak of the lockdowns and pandemic uncertainty, and comparably dour with what we saw during some of the worst parts of the Great Recession. Further, other confidence gauges have similarly pulled back from the recovery highs hit earlier this year but they are instead still well above the crisis lows. In fact, the personal finances subcomponent of the consumer “comfort” index from Bloomberg and Langer Research has steadily improved over the past few weeks, which supports some of the recent trends we have seen in consumer behavior.

Indeed, when assessing sentiment gauges it is often recommended to look at what people do rather than what they say, and to this end consumer behavior does not signal a lot of pessimism at the moment, particularly in two key areas. First, a record proportion of Americans are quitting their jobs. It is true that an uptick in Baby Boomer retirements will influence this measure going forward but the latest upsurge in voluntary separations has been so significant that it is clearly more a reflection of people in search of better employment opportunities. This is not the kind of bold action we would expect to see if people were truly concerned about their personal finances, let alone the broader economy in general.

Second, softer consumer confidence measures have yet to have any meaningful impact on spending behavior. Just look at the latest retail sales report from the U.S. Census Bureau, which revealed that the total dollar value of consumer spending climbed to another all-time high in October. Retail sales growth will eventually normalize and return to the pre-COVID trend, but the latest reports continue to diverge markedly from what one would expect looking at recent confidence surveys. None of this is to suggest that sentiment gauges are not useful. In fact, under the hood of most metrics we can clearly see that a big driver of recent pessimism has been inflation, and rising prices could very well influence just how strong this year’s holiday shopping season will be.

However, even if price pressures do drag on spending during the final months of 2021 it is still hard to see this holiday season being anything but another record for retailers. Specifically, retail sales fell in both November and December of last year, and with sales hitting an all-time high this October consumer spending could grind to a complete halt during the remainder of 2021 and the year-over-year comparison would still be very favorable. To be fair rising prices themselves are contributing to the absolute dollar value uptick in sales, but the pace of increase suggests consumers’ willingness to spend has not deteriorated. There has also been an uptick in credit card utilization, particularly among lower-income Americans which we will want to monitor going forward, but for now, there is no evidence that consumers are “tapped out.”

Moreover, rising credit usage can be a sign of elevated confidence in future earning power, so it would instead be a persistent decline in credit after the increase that is more concerning. In the meantime, businesses seem to expect nothing but strong demand going forward. For example, many retailers started ramping up inventory well in advance of the holiday season in order to get ahead of potential supply issues and meet their robust demand expectations. Ironically this has actually put more pressure on immediate supply and in turn is another reason we have stated that incoming inflation measures could keep getting worse before they get better.

Another noteworthy holiday-related retail development is that U.S.-based companies have announced 940,300 seasonal hiring plans, according to Challenger, Gray & Christmas. That is up 11 percent from 2020, a record high, and could mean more income for many Americans in Q4. However, retail seasonal hiring actually fell 9 percent in October, a sign of the continued difficulties many firms are having filling vacant positions. What is worse is that this report mainly looks at large corporations, so it is safe to assume that smaller businesses may have even greater problems filling vacancies during the holidays.

What To Watch This Week:


  • Pending Home Sales Index 10:00 AM ET
  • Dallas Fed Manufacturing Survey 10:30 AM ET
  • John Williams Speaks 3:00 PM ET


  • 2-Yr Note Settlement
  • 5-Yr Note Settlement
  • 7-Yr Note Settlement
  • 10-Yr TIPS Settlement
  • 20-Yr Bond Settlement
  • Case-Shiller Home Price Index 9:00 AM ET
  • FHFA House Price Index 9:00 AM ET
  • Chicago PMI 9:45 AM ET
  • Consumer Confidence 10:00 AM ET


  • MBA Mortgage Applications 7:00 AM ET
  • ADP Employment Report 8:15 AM ET
  • PMI Manufacturing Final 9:45 AM ET
  • ISM Manufacturing Index 10:00 AM ET
  • Construction Spending 10:00 AM ET
  • EIA Petroleum Status Report 10:30 AM ET
  • Beige Book 2:00 PM ET


  • Challenger Job-Cut Report 7:30 AM ET
  • Jobless Claims 8:30 AM ET
  • Raphael Bostic Speaks 8:30 AM ET
  • EIA Natural Gas Report 10:30 AM ET
  • 3-Yr Note Announcement 11:00 AM ET
  • 10-Yr Note Announcement 11:00 AM ET
  • 30-Yr Bond Announcement 11:00 AM ET
  • Raphael Bostic Speaks 11:30 AM ET


  • Employment Situation 8:30 AM ET
  • PMI Composite Final 9:45 AM ET
  • Factory Orders 10:00 AM ET
  • ISM Services Index 10:00 AM ET
  • Baker Hughes Rig Count 1:00 PM ET

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