US economic perspectives: Buying time

As the holiday shopping season begins, nominal labor earnings growth at the start of Q4 has been by far the strongest since before the great recession. Real payroll earnings growth outstrips other years by even more as energy prices have been falling. The acceleration in incomes at the start of Q4 is also likely a positive. In past years, when Q4 earnings growth was above trend, as it has been this year, sales beat the National Retail Federation forecast. (In years when earnings fell short of trend, such as last year, sales fell short of the NRF forecast.)

Consumer confidence—especially expectations—has been signaling a faster pace of spending than recent quarters have delivered. The rise in confidence in recent months is another positive—also consistent with sales beating (already healthy) NRF expectations.

Falling energy prices could provide a boost to holiday sales. Gasoline and other energy goods are 3.5% of consumer spending. The 21% decline in gasoline prices from the peak in late June frees up 0.7% of consumption for other purposes. If the saving rate were low, that windfall might be more likely to be ploughed into savings. However, with a 5%+ saving rate despite low interest rates and rising household net worth, at least some of the freed-up spending is likely to help holiday cheer.

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