Higher GDP, Consumer Spending Will Boost 2016 Growth

Financial FAQs

Q4 GDP growth was just revised upward to 1.0 percent, from the 0.7 percent first estimate.  This, January’s personal income figures and durable goods orders show consumers and even parts of the manufacturing sector are still expanding, which is a good start for 2016 growth vs. last January, when the severe winter stopped almost all growth in Q1.

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Graph: Marketwatch

Median annual household income rose 0.7 Percent in November, or $57,173, according to a just released Sentier Research report. It was in November that incomes finally surpassed the $56,698 median seen at the onset of the Great Recession.  Why is this important?

“We have recaptured all of the income losses that have occurred since the beginning of the last recession in December 2007,” said Sentier’s Gordon Green, a former U.S. Census Bureau official. And incomes are now up 0.4 percent from where they stood in January 2000—the month that Sentier Research began tracking this data.

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Graph: Econoday

Personal income jumped 0.5 percent in January as did consumer spending, both readings higher than expected. Also higher than expected are the report’s inflation readings especially the core PCE which rose 0.3 percent for a year-on-year plus 1.7 percent.

And the factory sector bounced back strongly in January, indicated first by last week’s industrial production report and now by durable goods orders which are up a very strong 4.9 percent. Aircraft did add to the gain but when excluding transportation equipment, durable orders still rose 1.8 percent. And core capital goods orders, which had been weakening, bounced back strongly with a 3.9 percent gain.

Machinery posted big gains in the month especially for new orders as did computers and fabricated metals. Motor vehicles showed strength in both orders and shipments. Total shipments jumped 1.9 percent in the month, though shipments of core capital goods, held down by prior weakness in orders, fell 0.4 percent to open the first quarter on a down note, says Econoday.

But a positive in the report is a 0.1 percent dip in inventories which, together with the rise in shipments, pulls down the inventory-to-shipments ratio to a leaner 1.64 from 1.67. And unfilled orders, after contracting sharply in December, inched 0.1 percent ahead in January.

Wages and salaries are now rising at 4.5 percent year-over-year. It is the most important number to look at in the personal income statistics, because it is the major reason consumers are spending more after a year of saving from lower gas prices. These salary earners make up 80 percent of our workforce, which is sure to boost GDP growth above 3 percent this year, as we have been saying.

Harlan Green © 2016

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

About populareconomicsblog

Harlan Green is editor/publisher of PopularEconomics.com, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
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