Despite a short decrease in consumer spending in July, data indicates that consumer spending and confidence are increasing overall. This is largely due to an improving labor market as well as an increase in availability of factors that help consumers live beyond their means.
One factor is the willingness of consumers to borrow, allowing the stock and housing markets to do their savings for them. This is a particularly positive indicator, as it not only shows the confidence of consumers but also the confidence of lenders.
Asset prices are near their highest level, and the link between their value and consumer spending (the “wealth effect”) predicts that these stronger prices will give consumers the confidence to add more leverage. On top of this, credit is rising in economically sensitive sectors, such as car-loans, while total household debit service is at an all-time low. Eventually households will feel the burn of economically harsh times again, but it appears that consumers have a lot of spending to do before then.