U.S. Consumers: How are they Doing?

Around the Curve

U.S. Consumers: How are they Doing?

Consumer sentiment and sales are tightly tied, and related to the interest consumers pay.


Sentiment and Sales

After drifting lower over the last several months, both U.S. consumer confidence and expectations popped in February. Late fourth-quarter events like the federal government shutdown and the broad-based selloff in equities were a drag on optimism. Chart 1 shows how same store dollar volume tracked these sentiment factors, with retail transactions in sharp retreat at the end of last year.

 

Chart courtesy of Brandywine Global.  Source: Bloomberg. Past performance is no guarantee of future results. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.
 

So what’s changed?

The risk of a government debt ceiling stalemate looms, but in the interim, equity market performance has been comparatively stable. Perhaps more importantly, the Federal Reserve gave consumers and businesses alike a reprieve by pledging to be patient with respect to monetary policy. Chart 2 compares the commercial bank interest rate—typically the annual percentage rate for credit cards—versus the fed funds rate. Up until recently, that commercial rate was moving toward its 20-year high. We’ll have to see if a rebound in consumer confidence can offset the drag on consumption typically associated with the higher credit card rates.

 

Chart courtesy of Brandywine Global.  Sources: Bloomberg, Haver  Analytics. Past performance is no guarantee of future results. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

 

 


Definitions:

The Federal Open Market Committee (FOMC) is a policy-making body of the Federal Reserve System (Fed),responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments.

The federal funds rate (fed funds rate, fed funds target rate or intended federal funds rate) is a target interest rate that is set by the FOMC for implementing U.S. monetary policies. It is the interest rate that banks with excess reserves at a U.S. Federal Reserve district bank charge other banks that need overnight loans.

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