The consumer base is continuing to show strength as disposable personal income expanded 0.4% in August, the Bureau of Economic Analysis (BEA) said today. However, despite the increase in buying power, consumers also got thriftier as expenditures stagnated.
Consumer income and expenditures is closely watched because it creates the pull on the economy that translates to freight volumes.
Chris Brady, president of Commercial Vehicle Consulting, told Fleet Owner that this is a sign of consumers settling down after a very robust 1.1% spike in expenditures recorded in July, in spite of a much leaner 0.2% growth in spending money for that month.
“It is probably related to employment gains coupled with slight increase in wages,” Brady said. “It bodes well for continual growth in consumption or retail sales— you want personal growth to offset higher energy costs.”
Disposable personal income (consumers’ combined income less taxes) growth accelerated over June and July’s tepid 0.2% growth.
Economic growth during the second quarter turned out to be more robust than economists originally thought. In a separate report, gross domestic product (GDP), the most comprehensive measure of the economy, was revised upward to an annual rate of 3.3% growth, from BEA’s previous 2.8% estimate.
On the consumer side, second quarter consumption was relatively stagnant, noted Brady. Durable goods consumption declined 0.3%, dogged by a weak auto market, while nondurable goods consumption rose 0.1%.
Business spending was extremely robust however, as equipment and software investments rose 14.2% over the first quarter. “This means manufacturers are producing machinery, which is a nice stimulus for transportation spending,” Brady said. Exports were also strong, posting a 0.7% increase. “This says that linehaul shipment volumes within the manufacturing sector are expanding,” he said.
“There were a strong growth in inventories, yet inventory to sales ratios remain relatively low— the risk is if consumer spending and (retailers’) sales projections are higher than what consumer are spending, inventories would get excessive,” which would bring down new orders and freight volumes, Brady explained. However, based on recent indicators of steadily climbing incomes and spending, there are red flags on the consumer side yet.
“Even moderate growth will keep capacity tight through the end of the year. This is right now the peak season for trucking. Retailers are building stocks for the holiday season,” Brady said.