The key driver of US recovery still intact

Bloomberg

When US retail sales came in lower than expected last week, some began to worry that the average consumer wasn’t as strong financially as previously believed, but according to analysts at Macquarie Capital Markets Ltd., this is just a blip on the radar.
While there are a number of reasons for consumers to be more cautious with political uncertainty across the globe and unrest overseas, Macquarie’s David Doyle says that the underlying trend shows people are getting jobs, earning more money, and then spending some of those funds.
“Most important in assessing data are the underlying trends,” Doyle writes. “On a year-over-year basis, which removes a large portion of the month to month volatility, spending trends remain firm.” To back up his claim, Doyle touched on a few reasons for his optimism.

CONSUMERS STILL HAVE A FAIR AMOUNT OF CONFIDENCE
They might be slightly less confident than they were at the start of 2015, but Macquarie points out that they are still pretty optimistic. “While consumer confidence levels have trended sideways over the last 1.5 years, they remain near levels seen in the prior expansion.”
THEY’RE GETTING BIGGER
PAYCHECKS
Wage growth remained elusive for a good chunk of the economic recovery, but after a blip at the end of 2015, things have really picked up this year. In fact, wage growth is now on pace to break a record in this decade.

CONSUMERS ARE MORE
FINANCIALLY STABLE
The consumer spent much of the recovery adding to their savings, and Doyle says that they are now poised to start using better credit scores to take on debt. “[A]fter being a drag on consumption for much of the expansion, the consumer is poised to begin a period of modest releveraging,” he writes. “Combined with interest rates near record lows, credit trends can once again provide support to consumption.”
This comes at a time when the consumer might be more important for economic growth than in recent memory. Earlier this month, Bill Gross of Janus Capital Group Inc. told Bloomberg Television that “the economy, absent consumer spending, is basically in a recession.”