debt in May was $603 billion, a 22-month
high, reflecting only a modest 1 percent
increase over the past 12 months. Annual
Home Equity Real Estate Credit in May
shrunk to the lowest level since fall 2008,
reflecting consumers who are not eager to
carry more debt than they feel they need.
The current savings rate of 3. 2 percent
is near the historic average of the last 20
years, although down from the mid-2010
peak of 5. 8 percent. The fact that consumers have savings to draw down is a big difference from 2006/2007 when savings
fluctuated between 1.0 and 2. 5 percent and
inflation was 2. 6 to 4.0 percent.
Inflation-adjusted Total Personal
Income has risen 2. 4 percent above last
year’s level (on an annual basis), and
Disposable Personal Income that allows
for discretionary spending is up 1. 8 percent. Inflation is not eroding personal
incomes, allowing consumers to maintain their current levels of consumption.
Double-digit gains in the stock market have
likely eased some financial tensions, as has
the Federal Reserve’s commitment to keep
interest rates low for the foreseeable future.
In short, consumers are spending, even as
they keep their debt levels in check.
Corporate Profits for Domestic
Retail Trade. Although consumer spending has been mild in this post-2009 period,
corporate profits over the last 12 months
rose 20. 2 percent. Right-sizing in recent
years has created a healthier industry, able
to invest in their markets and weather volatility in the economy.
Construction. Housing starts and
will not go negative in 2014. The American
at 52.9—an impressive 15. 5 percent above
Institute of Architects’ Architectural Billings
Index in May was above the benchmark 50,
Architectural Inquiries is even higher
at 59.1. However, thinking of building and
doing so are not always in sync.
PREPARE FOR GROW TH
Among the keys to a more vibrant retail
environment will be employment growth.
Employment is trending upwards; 2. 1
million jobs have been created in the last
year. This should carry retail sales growth
through 2014. However, employment
growth ( 1. 5 percent) remains below pre-recession levels and hardly reflects a surging economy. We have the lowest labor force
participation rate in more than 30 years,
with many new hires at the low end of the
economic wage scale. Fears that businesses
will have to pay or be penalized for providing health care for every 30-hour-per-week
worker seem to be slowing employment
growth as well as business investment.
Coming into the upside of the business
cycle in 2015, we expect consumers as well
as businesses will be well positioned to
be less concerned about what could or
might go wrong in the economy and instead
prepare to meet increasing demand in the
years to come.
As Jim Collins, author of Built to Last,
Great By Choice, reminds us from his 30
years of conducting research into successful businesses, “Whether we prevail or fail
depends more on what we do than on what
the world does to us.”
More for A.R.E. Insiders
A.R.E. members and industry suppliers—
Don’t miss a more detailed discussion of the
short- and long-term economy from Dr. Jeff
Dietrich when he keynotes A.R.E.’s Industry
Summit on November 7 at the Ocean Reef
Club in Key Largo, Fla. More information is
online at www.retailenvironments.org and
in the A.R.E. Insider edition of this magazine,
on page IN2.
Dr. Jeff Dietrich is a senior
analyst for the Institute for
Trend Research. ITR’s fore-
casts have appeared in The
Wall Street Journal, New
York Times, USA Today,
Business Week, The Washington Times,
and others.
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Mortgage
HE Revolving
Auto Loan
Credit Card
Student Loan
Other
2013:Q1 Total
$11.23 trillion
2012:Q4 Total
$11.34 trillion
(71%)
While household debt has declined to 2006 levels, consumer spending is gaining strength.
Total Debt Balance and Its Composition
Source: FRBNY Consumer Credit Panel/Equifax