FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
November 6, 2018

IN THIS ISSUE:

1. Consumer Confidence Hits 18-Year High in October

2. Friday’s Jobs Report Was Much Stronger Than Expected

3. US Wages & Salaries Rise by the Most in a Decade

4. Gallup Holiday Spending Survey – Strong Again This Year

5. Our Daughter is Engaged to be Married – Oh No… Oh Yes!

Overview

Most forecasters and economists that I read do not believe the surge in economic growth we’ve seen over the last two quarters will last. Most believe that growth will slip back to 2-2.5% or even lower by this time next year. I don’t follow their reasoning – unless they assume that Democrats regain control of government and roll back President Trump’s tax cuts and deregulation. But that’s a discussion for another day.

Or maybe they don’t think today’s near record high consumer confidence will last. It won’t last forever, of course, but I believe there are reasons why it could last considerably longer and may get even higher before the peak in this economic cycle. We’ll look at some of the reasons why as we go along today.

Let’s start with a look at the latest Consumer Confidence Index report for October, which was stronger than expected. Then we’ll examine last Friday’s much stronger than expected unemployment report for October. From there we’ll look at new data showing that wages and salaries have recently risen to the highest levels in a decade.

On a personal note, I have some exciting news to report. Our daughter is getting married, and it looks like I’ll be walking her down the aisle next spring. I’ll share some details at the end.

Consumer Confidence Hits 18-Year High in October

Despite the swoon in the stock markets last month, consumer confidence soared to an 18-year high in October. The Conference Board reported that its Consumer Confidence Index jumped by a more than expected 2.6 points to 137.9, the highest level in 18 years. The jump in October put the Index closer to the all-time high of 144.7 reached in 2000, the Conference Board said.

Compiled during each month’s first three weeks, the Consumer Confidence Index is based on answers from 5,000 consumers to five questions about their present and anticipated employment and income situation. They are also surveyed about their views on the stock market and interest rates.

With a 3.7% unemployment rate, consumers feel good about their job prospects. Lynn Franco, senior director of economic indicators at the Conference Board, notes that respondents’ assessment of present and expected conditions suggests that they “expect the strong pace of growth to carry over into early 2019.”

Despite a 6% decline in the S&P 500 from its record high by the survey’s October 18 cutoff date, sentiment regarding stocks also rose from the September reading. The survey found that 44.5% of consumers expect higher share prices in the near term, while the percentage expecting stocks to skid fell to 19.1%, the lowest level since February 2007.

“These historically high confidence levels should continue to support healthy consumer spending, and are welcome news for retailers as they begin gearing up for the holiday season," said Ms. Franco.

Friday’s Jobs Report Was Much Stronger Than Expected

Job growth blew past expectations in October. It was one of the strongest jobs reports in decades. The Labor Department released its unemployment report for October last Friday and it was much stronger than the pre-report consensus.

New jobs reported last month surged by 250,000 versus estimates of 190,000-200,000. The headline unemployment rate held at a 48-year low of 3.7% for the second month in a row. It doesn’t get much stronger than that.

Even better, average hourly earnings for private workers advanced 3.1% nationally from a year earlier, topping 3% for the first time since 2009. While some naysayers believe the rise above 3% was an outlier, you can see below that the trend in wages has been rising steadily since 2013. More on this below.

The ranks of the employed rose to a new record 156.6 million and the employment-to-population ratio increased to 60.6%, the highest level since December 2008, according to the Labor Department's household survey. The headline jobless number stayed level even amid a two-tenths of a percentage point rise in the labor force participation rate to 62.9%. Americans counted as outside the labor force – those not employed and not looking for work last month – tumbled by 487,000 to only 95.9 million. Everything was positive in this report.

The latest report suggests that job creation will continue to be strong at least through the end of this year and probably well into next year. Little seems to stand in the way of the economy finishing 2018 out on solid footing.

The only negative is that Friday’s super-strong jobs report only makes it that much more likely the Fed will hike short-term interest rates at its December 18-19 policy meeting. Yet the markets have been expecting another December rate hike well before last Friday’s jobs report. 

In summary, Friday’s jobs report was strong on every level and definitely encourages voters who view the health of the economy in deciding how they’ll vote. We’ll see tonight.

US Wages & Salaries Rise by the Most in a Decade

US wages and salaries rose by the most since 2008 in October, while private sector payrolls increased by the most in eight months. Job growth accelerated last month after Hurricane Florence weighed on restaurant and retail employment in September.

The Labor Department’s Employment Cost Index showed wages and salaries, which account for 70% of employment costs, jumped 0.9% in the 3Q after climbing 0.5% in the prior quarter.
That pushed the annual increase in wages and salaries to 2.9%, the biggest gain since September 2008, from 2.8% in the year ended June.

Wage growth was boosted by a jump in transportation and warehousing, likely reflecting a shortage of truck drivers. There were also gains in other industries, including information technology, healthcare and leisure/hospitality.

The Employment Cost Index is widely viewed by policymakers and economists as one of the better measures of labor market “slack.” It is also considered a better predictor of core inflation, which remains relatively low. Of course, that is not expected to stop the Fed from hiking interest rates again in December.

Finally, overall benefits for all workers increased another 0.4% in the July-September quarter after rising 0.9% in the 2Q. They were up 2.6% in the 12 months through September. That’s all good news.

Gallup Holiday Spending Survey – Strong Again This Year

According to the latest Gallup poll, Americans predict they will spend $885 on gifts this holiday season. Gallup noted that the $885 estimate is a bit lower than the $906 recorded in October 2017, but is higher than any other October holiday spending projection in Gallup's trend since the 2007-2009 recession.

Although Americans' holiday spending estimate is down from last year, that doesn't necessarily mean spending will be lower. Gallup will run this same poll again in November when it could improve; in any event, it portends another strong year.

The $885 spending average reflects the finding that 33% of Americans plan to spend at least $1,000 on Christmas gifts, 22% say they will spend between $500 and $999, 29% will spend between $100 and $499, and 3% will spend less than $100.

Spending could be affected by shifts in economic mood if the stock market undergoes significant changes between now and December, as well as any psychological impact of today’s midterm elections.

Our Daughter is Engaged to be Married – Oh No… Oh Yes!

Our daughter (our second child – age 26) recently got engaged to her sweetheart of the last three years. They plan to get married in April of next year. Her husband-to-be came to Austin a month or so ago to ask for our blessing and proposed to her a couple of weeks ago. They were in Austin recently to look at wedding venues on beautiful Lake Travis where we live.

They both have successful careers and work for a real estate developer in College Station, Texas where they both attended Texas A&M University. She is a CPA there, and he is in marketing. They plan to stay in College Station, which is about a two and a half hour drive from our home.

Debi and I are very excited about this latest development. Both our daughter and her fiancé are devoted Christians, and we welcome him into our family. Now it’s on to planning a wedding; a LOT has changed since Debi and I married 32 years ago. It will be difficult for me to let her go, but I am very happy for her. I will be so proud to walk her down that aisle!

It seems like it was just yesterday when I was teaching our kids to water ski and drive the boat on the lake. Time flies… really, but you know that.

I'll leave it there for today.

All the best,

Gary D. Halbert

SPECIAL ARTICLES

Consumer Confidence Surges to 18-Year High

250,000 New Jobs, Wages Grow Over 3% in October

Stock Market Typically Rises After Midterm Elections

Gary's Between the Lines Blog: Stocks Rally Strongly After Midterm Elections

 

Forecasts & Trends E-Letter is published by Halbert Wealth Management, Inc., a Registered Investment Adviser under the Investment Advisers Act of 1940. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of the named author and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific advice. Readers are urged to check with their financial counselors before making any decisions. This does not constitute an offer of sale of any securities. Halbert Wealth Management, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have their own money in markets or programs mentioned herein. Past results are not necessarily indicative of future results. All investments have a risk of loss. Be sure to read all offering materials and disclosures before making a decision to invest. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.