Retail sales for January came in better than anticipated

1. Consumer Economic Trends
February 2016
Chuck McKay
ckmckay@me.com

2. Consumer Economic Trends – February 2016
2/2/16 Consumer Economics Chartbook - CKMcKay 2
Summary
• Q4 GDP disappointed overall driven by lower business investment
and exports. Consumer spending was less disappointing but by
no means robust
• Income growth has yet to accelerate although the latest average
wage gains are encouraging
• Energy spending, especially gasoline, remains a key driver of tepid
spending as consumers appear reluctant to spend their savings at
the pump
• Consumers have been more willing to use credit as evidenced by
the increase in revolving debt outstanding over the past year
• January jobs growth was below expectations, but jobs grew 2.7
million during 2015, the fifth straight year over 2 million
• E-commerce emerged as the driver of retail sales growth, a trend
accelerated by declining gasoline station sales
List of Charts
1. Disposable income
2. Consumer spending
3. Retail sales
4. Ecommerce sales
5. Jobs growth vs. UI claims
6. Employment ratios
7. Wage growth vs. inflation
8. Revolving credit
9. Purchase volume
10. Consumer sentiment
11. Small business optimism

3. Slowing disposable income growth, rising savings and increasing taxes are limiting
consumers spending capacity
2/2/16 Consumer Economics Chartbook - CKMcKay 3
17.0%
17.5%
18.0%
18.5%
19.0%
19.5%
20.0%
20.5%
21.0%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
'07 '08 '09 '10 '11 '12 '13 '14 '15
Personal Income and Savings
Disposable Personal Income Y/Y Growth% Personal Savings Rate % Tax Burden % Personal Income (right scale)
Source: Bureau of Economic Analysis
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4. During 2015 consumer spending Y/Y growth ranged between 3-4%. Lower energy costs
were a significant drag as savings went largely unspent
2/2/16 Consumer Economics Chartbook - CKMcKay 4
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
'11 '12 '13 '14 '15
Consumer Spending Growth Y/Y%
Total Consumer
Spending
Durable Goods
Nondurable Goods
Services
Nondurable Goods
ex. Energy
Source: Bureau of Economic Analysis
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5. January retail sales growth surprised on the upside. Gasoline station sales are recovering
due to the lapping of the decline in gasoline prices
2/2/16 Consumer Economics Chartbook - CKMcKay 5
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
'11 '12 '13 '14 '15 '16
Retail Sales Growth Y/Y%
Total Retail Sales Excluding Autos Ex. Autos & Gasoline Stations Gasoline Stations (right scale)
Source: Census Bureau
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6. During the last four quarters e-commerce contributed over 55% of retail sales growth…
falling gasoline sales has accelerated e-commerce’s growth impact
2/2/16 Consumer Economics Chartbook - CKMcKay 6
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
'07 '08 '09 '10 '11 '12 '13 '14 '15
E-Commerce Sales Growth Y/Y%
Total Retail Sales E-commerce Total ex. E-commerce E-commerce Overall Growth Contribution 4QAverage (right scale)
Source: Census Bureau
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7. January jobs gains disappoint… initial claims remain historically low… 12 month average
job gains at early ‘06 levels
2/2/16 Consumer Economics Chartbook - CKMcKay 7
250
280
310
340
370
400
430
460
490
520
550
580
610
640
670
700-900
-800
-700
-600
-500
-400
-300
-200
-100
0
100
200
300
400
500
600
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16
Monthly Employment Gains vs. Unemployment Claims (Thousands)
Monthly Payroll EmploymentGains 4 Week Moving Average UnemploymentClaims (rightscale inverted)
Source: Bureau of Labor Statistics
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8. The unemployment rate has reached pre-recession levels; however, recovery of the broader
employment ratios lags behind significantly
2/2/16 Consumer Economics Chartbook - CKMcKay 8
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
57%
58%
59%
60%
61%
62%
63%
64%
65%
66%
67%
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16
Employment Ratios
Labor Force Participation Rate Employment-Population Ratio UnemploymentRate (rightscale)
Source: Bureau of Labor Statistics
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9. Wage growth picked up during the later part of ‘15 and is tracking slightly ahead of core
inflation
2/2/16 Consumer Economics Chartbook - CKMcKay 9
-1%
0%
1%
2%
3%
4%
'10 '11 '12 '13 '14 '15 '16
Wage Growth vs. Inflation
Agerage Hourly Earnings Y/Y Growth CPI Y/Y % Change Core CPI Y/Y % Change
Source: Bureau of Labor Statistics
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10. Revolving credit growth has accelerated since early ‘14; however, as a percentage of
disposable income revolving credit has remain stable at ~2ppt below its pre-recession level
2/2/16 Consumer Economics Chartbook - CKMcKay 10
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
$800
$825
$850
$875
$900
$925
$950
$975
$1,000
$1,025
$1,050
'07 '08 '09 '10 '11 '12 '13 '14 '15
Consumer Revolving Credit
Consumer
Revolving
Credit
Outstanding
Consumer
Revolving
CreditY/Y%
Growth (right
scale)
Consumer
Revolving
Creditas a % of
Disposible
Personal
Income (right
scale)
Source: Federal Reserve, Bureau of Economic Analysis
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11. Q4 purchase volume growth stable at 8.3%
2/2/16 Consumer Economics Chartbook - CKMcKay 11
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
'08 '09 '10 '11 '12 '13 '14 '15
Purchase Volume Growth Y/Y%
Source: AXP, DFS, MA, V Company Reports
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12. Consumer sentiment recovered somewhat during the second half of 2015, but remained
below late 2014/early 2015 levels
2/2/16 Consumer Economics Chartbook - CKMcKay 12
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
40
50
60
70
80
90
100
110
120
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16
Consumer Sentiment
University of Michigan Consumer Sentiment Y/Y% Change (rightscale)
Source: Bureau of Labor Statistics
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13. Small business optimism declined 1.3ppt from December ‘15 and is now at its lowest since
February ‘14
2/2/16 Consumer Economics Chartbook - CKMcKay 13
80
85
90
95
100
105
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16
Small Business Optimism
NFIB Small Business Optimism Index 6 Month Moving Average
Source: National Federation of Independent Business
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