America’s ‘$13 trillion gorilla’ is getting even bigger


There seems to have been one constant source of hope for the US economy over the past year: the US consumer.

Even as the stock market was falling, the UK was exiting, and corporate earnings kept disappointing, the US consumer has shown a resiliency that has buoyed the hopes of many economists.

According to the Macquarie consumer equities team, recent trends have highlighted that not only is the American consumer looking strong, but there are good reasons to think the outlook will only improve.

The Macquarie team said in a note Tuesday that macro data continued to show “that the global economy’s $13 trillion gorilla, the US consumer, is getting even stronger.”

In fact, the team says, the rising income of American consumers has caused American consumers to grow their spending at a historic rate, no matter how you measure it.

“Aggregate spending is rising by ~$500 billion per year and data for 2Q has been robust,” the note said.

“The Atlanta Fed’s GDPNow estimate suggests real consumer spending is tracking at a 4.5% pace for the current quarter. This would mark its strongest quarterly growth rate in over a decade!”

According to the Macquarie team there are three big reasons to think that this growth will continue. They are:

  1. A strong labor market: “While jobs growth has moderated, this is being more than offset by improving wage growth,” the analysts said.
  2. Consumers are ready to take on debt to spend: “The household debt to disposable income ratio has declined by over 20% since 2007 and has stabilized at its lowest level since 2002,” the report said. “As we highlighted, the consumer is ready to undergo a period of modest re-leveraging.”
  3. Consumers can deal with rising interest rates and gas prices: “The share of disposable income allocated towards energy and interest expense are both at multi-decade lows,” the analysts wrote. “The consumer is as well prepared as at any time over the past 35+ years to absorb any potential price increases on either of these fronts.”

The analysts note that while the reported earnings of some large retailers seem to contradict this thesis, the majority of the growth is being driven in online channels. Thus, these large-scale physical retailers are not seeing as much of the benefit.

“Our work suggests that nearly all of the increase in spending is occurring within i) services, and ii) e-commerce,” the note said.

Add that all up, and the outlook for one of the strongest parts of the US economy appears to be pretty optimistic for the Macquarie team.