Consumer confidence soared to its highest in more than 15 years in December as more Americans saw more strength ahead in business conditions, stock prices and the job market following the election of Donald Trump as president in November. The Conference Board said on Dec 27th its Consumer Confidence Index rose to 113.7 this month from an upwardly revised 109.4 in November. That was the highest reading since August 2001. US stock indexes have surged to record highs following the election, in which Republican Trump surprised most pre-election polls to defeat Democrat Hillary Clinton. The S&P-500 SPX has gained more than +6% since Election Day, while the blue chip Dow Jones Industrial Average has risen by nearly +9% to near the 20,000 mark. Small cap stocks have outpaced both, with the Russell 2000 gaining +15% in the same run.
The S&P/Case-Shiller national home price index rose +5.5% year over year to a record high of 184.80 in September, surpassing the previous high of 184.62 set in July 2006 at the peak of the housing boom. In all 20 US-cities included in the 20-city home price index, house prices increased year over year. Seattle (up +11%), Portland (up +10.9%) and Denver (up +8.7%) posted the largest year-over-year gains. Miami and Tampa (up 0.5%) posted the largest month-over-month increase, while Cleveland and San Francisco posted drops of -0.4%, and Detroit posted a decline of -0.1%. House prices continued their steady recovery in October, although a spike in borrowing costs after Trump’s Nov 8th victory could present a headwind to sustained home value gains.
Americans as a whole are much richer than before, but most of wealth gains have gone to the richest families, according to a recent report released by the Federal Reserve. American households’ combined wealth rose to a record high of $90.2 trillion in Q’3, driven by returns in equity and real estate investment. Total household wealth also includes checking and savings accounts and subtracts mortgages and other debt. Greater wealth can encourage more spending and boost economic growth. Stock prices have soared to new record levels since the Nov 8th election, which means household net worth is likely higher now.
However, the wealth isn’t widely shared, which limits the benefits of any increase. Most of the household wealth gains have gone to the richest families, as they hold more financial assets than most middle class families. The wealthiest 10% of US-households own about 91% of stocks and mutual funds, according to a research paper by Edward Wolf, an economist at New York University who studies the wealth distribution. The wealthiest 1% held 42% of the nation’s wealth, the latest data available, according to research published earlier this year by economists Emmanuel Saez and Gabriel Zucman of the University of California-Berkeley. The typical rich family in America now has nearly seven times the wealth of a middle-income family, the biggest gap in three decades, according to an analysis by Pew Research Center.
The US-economy depends a lot more on high-income, affluent consumers than it did decades earlier. Affluent households own the bulk of the stocks and would be prone to cut back as their portfolio values shrink. When the peak in the Trump rally is finally reached, and the inevitable -10% correction unfolds, it could trigger a vicious cycle of negativity that can cause the economy to slip into a mild recession. A recent study by Moody’s Analytics found that for every dollar in stock wealth that’s lost, consumer spending declines by 6 cents. A -10% decline in the stock market flushes out about $3-trillion in wealth.
The US is often referred to as the land of economic opportunity. Apparently, it’s also the land of consumption and “spend everything you’ve got.” You don’t have to look far for confirmation that Americans are generally poor savers. Every month the St. Louis Federal Reserve releases data on personal household savings rates. In July 2016, the personal savings rate was just 5.7%. Comparatively, 50-years ago, personal savings rates in the US were double where they are today, and nearly all developed countries have a higher personal savings rate than the United States. In other words, Americans are saving less of their income than they should be — the recommendation is to save between 10% and 15% of your annual income — and they’re being forced to do more with less in terms of investing.
New data from personal-finance news website GoBankingRates that shows just how dire Americans’ savings habits really are. Earlier this year, GoBankingRates surveyed more than 7,000 Americans and asked how much they had in their savings account. The result? Nearly seven in 10 Americans had less than $1,000 in their savings account. Breaking the survey data down a bit further, 34% of Americans don’t have a dime in their savings account, while another 35% have less than $1,000. Of the remaining survey-takers, 11% have between $1,000 and $4,999, 4% have between $5,000 and $9,999, and 15% have more than $10,000. In other words, approximately one third of American households were no longer able to cover the core necessities – food, housing and transportation – with average income. 76% of all Americans are living paycheck-to-paycheck.
As President Obama prepares to leave office, his legacy will include an increase in the number of Americans using food stamps. The number of food stamps recipients went up by 10.7 million people, a +32% jump, since President Obama took office in 2009, according to data released by the Department of Agriculture (USDA). In 2009, 33.5-million people received food stamp benefits. As of October 2016, the last month reported for FY 2016, 44.2-million people received food stamp benefits, an increase of about +10.7-million persons. that equals 13.6% of the population. “For 90% Of Americans There Has Been No Recovery,” the Federal Reserve said, and shows that “the majority of the benefit of surging asset prices has been concentrated in the top 10% of income earners in the country, or those with capital to invest.”
So it’s baffling to understand why respondents in the the US-consumer confidence surveys are influenced by the direction of stock prices, since they have such little exposure, if any, to the stock market. According to the Conference Board survey, a stunning 45% of US-households are expecting stock prices to be higher in the next year, the most upbeat reading since January 2004. Households are banking on Donald Trump’s pledges to boost jobs, cut taxes and ease regulations. We’ll know by the middle of 2017, whether he was able to deliver in a highly corrupt and polarized Washington DC.