It didn’t take long for the narrative to change. The labour market and consumer spending data continue to defy the perennial recession forecasters. In truth, concerns over the US consumer have been overdone. Households balance sheets remain in robust shape. Unlike other cycles, this one has not been credit-led. It is misleading to focus solely on auto and credit card delinquencies, which have been rising, without any context. Mortgage balances account for over two-thirds of total US household debt, and mortgage delinquencies remain near secular lows.
The drop in core consumer prices, is boosting real purchasing power. In real terms, control group retail sales climbed by a 3m/3m annualised rate of 6.39% in July (deflated by the core goods CPI). For all the consternation surrounding the July payrolls report, layoffs remain historically low. The 4-week moving average for unadjusted initial claims has fallen below last year’s level once again. Cross-checking with the federal tax receipts data paints a consistent picture. Withheld individual income tax receipts climbed 7.9% y/y in July (6-month moving average).
A modest rise in the unemployment rate, due to a positive supply shock, is a very different proposition, to one driven by layoffs. Payrolls, derived from the Current Employment Statistics (CES), have once again proven superior to the employment figures from the Current Population Survey (CPS). Indeed, two recent studies have attributed most of the discrepancy between CES and CPS measures of employment to the recent immigration surge in the US. The greater-than-expected increase in immigration led to an underestimation of population growth in the CPS, and subsequently in the household measure of employment too.
