How the strong consumer could drive the economy in 2016

With the holiday season fast approaching, key on investors’ minds is how the U.S. consumer is feeling. Torsten Slok, chief international economist at Deutsche Bank, joined Yahoo Finance to discuss the current consumer frame of mind

Slok says not to be too worried about the recent tepid numbers in retail, as two-thirds of consumer spending comes from spending on services. “You spend more money on your mortgage or your rent, on transportation, on healthcare, on daycare and tuition for your children,” Slok said. “All those things add up to a much bigger amount compared to how much you buy in terms of ties and toys and T-shirts from department stores.”

Slok also turned to one of the more important drivers of GDP—housing. “Since 2007 and 2008, the housing market has only been recovering very, very slowly. So that’s why we still have a very good environment for the housing market with low interest rates still, with jobs being created, and, of course, also with now more signs of wage pressure,” Slok said, adding that the housing market should continue to help the economy from here.

And when it comes to labor, we have seen significant improvement. In fact, companies today are more worried that they can’t find the right kind of workers than they are about sales. According to Slok, “that tells you that we’ve gotten to a point in the recovery [where it] would make sense for the Federal Reserve to think about hiking rates.”

And Slok argues that Main Street is feeling better. “Since the crisis, the improvement mainly came in the upper-income and the middle-income groups,” said Slok. “But what we’ve seen over the last one-and-a-half years is three things: oil prices fell, the low-income groups got higher wages…and finally, job creation for low- and middle-income jobs has also done better. So a general improvement across the board for lower-income groups is, of course, really good news for the economic recovery.

 

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