Economist: Consumers remain cautious
December 20, 2013,
Mark Vitner, managing director and senior economist for Wells Fargo Securities, offers his take on the global economic scene.
Mark Vitner, managing director and senior economist for Wells Fargo Securities, gave conference attendees a quick spin around the global economic scene - "recent data on the global economy are slightly more positive but remain mixed" - but focused on recent developments in the U.S. economy.
"Uncertainty" was the first "key macroeconomic trend" he shared with his listeners. "Unprecedented changes in fiscal and monetary policy continue to cast a cloud of uncertainty over the economy," he said.
Another macro trend is that "consumers remain cautious." Vitner explained: "The consumer sector is slowly recovering, as consumers strive to make up for postponed purchases amidst sluggish job and income growth."
Addressing the U.S. Gross Domestic Product picture, Vitner said he sees economic growth gradually regaining momentum as the housing recovery takes hold and the drag from fiscal belt tightening gradually wanes. And he added that the combination of sluggish economic growth and low inflation "means that revenue growth is unusually sluggish, which tends to make businesses and households more cautious."
Vitner said the "massive expansion" of the Fed's balance sheet "has lifted asset prices more than it has boosted the economy's underlying fundamentals."
He had some sobering news on the labor market, noting that the employment-to-population ratio hasn't risen over the past four years, despite the fall in the unemployment rate. "The implication," he said, "is that many job seekers have simply given up."
Vitner believes that revenue growth "will remain challenged," which means that businesses "need to become more efficient but also stay nimble." And he added that businesses with strong balance sheets and access to the credit markets are better positioned for growth than other businesses.
Addressing consumer issues, Vitner said that rising stock prices have helped bolster household finances at a time when real incomes are barely growing. But, he added, "The bulk of the improvement has been at the upper end, which is one reason consumer confidence has recovered so slowly and retail sales have been so disappointing."
Overall, consumer confidence "remains low," according to Vitner. "While improving, consumer confidence remains at levels comparable to those seen during the recessions during the early 1990s and 2000s," he said. He also said much of the improvement in consumer confidence has been due to fewer respondents who believe the present conditions are bad rather than more who believe the conditions are good.
He said personal income growth remains "very sluggish," with gains "heavily skewed to upper and lower income households."
Looking for a bright spot? Try the housing sector, Vitner said. He said housing has been a standout in the "lackluster recovery," but added that "sales and construction are still well below typical levels at this stage of the recovery."
Low inflation should keep interest rates relatively low "for quite some time," he said.
Looking specifically at the home furnishings industry, Vitner said that production of furniture and related products has increased steadily over the past year.
Providing a state-by-state breakdown of personal income growth in the last year, he said North Dakota, South Dakota, Utah, Oklahoma, Texas and Florida all posted growth rates greater than 3.2% and are leading the nation.
States like Washington, California, Colorado, Iowa and Michigan, among others, are also showing growth in personal incomes at levels beyond the U.S. average of 2.7%, he said.
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