I just can’t help it.

No matter how much good economic news I find, there’s always some pundit blurring the good news with their own version of the consumer’s demise. And I just have to comment – because in my opinion, it’s just NOT SO!

All of us have views that are colored by our own preconceptions. And, yes it’s true that some retail giants are slashing revenue and earnings outlooks thus creating worries about retail in general and malls in particular. Auto sales are slowing, auto loan delinquencies are rising and the number of student loans that are in default seem to make the headlines at least once a week.

But… just as there are many negative forecasts, the news of the consumer’s death is greatly exaggerated. On average, consumers are in good shape.

The best news is that the labor market continues to heal. At 4.4% the unemployment rate is the lowest since 2007. Meanwhile wages and salaries are up 5.5% in the past year, besting the inflation rate by a long shot.

The other side of that coin – is that consumer debt burdens are down. The FED tracks the ‘financial obligations ratio’, which measures the share of after-tax income consumers need to meet their monthly debt service plus regular (non-debt) payments such as renting a home, leasing a car, property taxes, etc. At 15.4% of after-tax income, these payments are near the lowest since the early 1980’s!

Serious (90 days or more) auto loan and student loan delinquencies are at record highs. But serious delinquencies, for ALL loans- including auto and student loans, plus mortgages, home-equity, credit card, and other consumer debts are down substantially in the past seven years, to $415 billion (12/31/2016) vs. $1.04 trillion at the end of 2009. That is some serious debt reduction!

And I’m also not worried about problems with retail spending. Consumer habits are changing and shifting toward the internet, where sales are booming. When my wife and yours can shop on-line with a phone or tablet and have products delivered to our doorstep, the economy doesn’t need billions more square feet of retail space. So, brick and mortar retailing will continue to grow at a slower rate than GDP, but warehouses will expand.

If you only look for signs that consumers are in trouble, you can find it (and spin it!). However, once you broaden your vision to include the entire consumer landscape, the signs that consumers are in trouble are like rain in Phoenix. It’s there, but not all that much of a problem. Part of the problem is that some of the metrics that make up the ‘Retail Sales’ reports have not been fully adjusted to properly account for e-commerce. So, the poor growth (~2%) at old line brick and mortar stores (Sears, Macy’s, etc.) gets a lot more media attention than the 15% growth at e-commerce.

Real economic growth has been slow at about 2% a year. That means just about any economic statistic appears weak when compared to the 4-5% growth of the 1980’s.

But that doesn’t mean the economy is on the edge. No matter what the pessimists say, the US entrepreneur has been on a roll – creating new and better products that today’s consumer finds they ‘need’. And although the heavy hand of the government is holding things back, workers are earning more, just shifting their purchasing habits. This is a normal part of creative destruction and needs to be embraced, not feared.

So, consumers – Unite! and get out there and keep spending. Along with that, keep driving the markets higher! We like that! 

Market Minute 6/23/2017 – More New Market Highs

Although fewer than the past couple of weeks, there were more new market highs again this week. In particular, the cap-weighted S&P500* and the equal-weight S&P500 Indexes* hit new highs. This is enough evidence to maintain positive expectations on the broader market for now.

The larger cap stocks are once again leading the charge as they have for most of this year. Down on a sector level, healthcare is the new darling, having taken first place away from the tech stocks. While it is perhaps still open for debate, it appears that the trend is that the rest of the world is continuing to grow faster than the US markets. In all, the positive expectations for stronger world GDP growth and world markets growth appear to be continuing. It continues to be a good year for investors. 

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051

Phone (602) 252-8700
Fax (602) 252-8701
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Ronald Denk is an Advisory Representative offering services through Denk Strategic Wealth Partners, A Registered Investment Advisor. He is also a Registered Representative, offering investments through Lincoln Financial Securities Corporation, Member FINRA/SIPC.

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*The indices are representative of domestic markets and include the average performance of groups of widely held common stocks. Individuals cannot invest directly in any index and unlike investments, indices do not incur management fees, charges, or expenses, therefore specific index returns will be higher. Past performance is not indicative of future results.