Consumer Goods Production Likely to Grow Slower
Real disposable income was at an all-time high of $12,416 billion in November 2015 (seasonally adjusted at an annual rate), an increase of 3.5 percent over one year earlier, although below the long-term historical average. The month-over-month rate of growth has decelerated two months in a row, however, and, as a result, the annual rate of growth of 3.6 percent was unchanged for the third straight month. It certainly appears that disposable income growth is set to slow as we continue into 2016, just as the Fed begins raising interest rates.
As a result of the growth in real disposable income, real consumer goods spending has grown at a steady annual rate of about 3.8 percent since January 2015. This was well above the historic average rate of growth of 2.8 percent and almost double the average rate of growth over the last decade, but it does appear that consumer goods spending growth will decelerate slightly this year.
Despite the strong growth in consumer goods spending, consumer goods production experienced decelerating growth for most of the last year. And although the rate of growth has slowed, it was still fairly strong compared with the last decade. The current annual rate of growth is 2.2 percent compared with the average rate of change over the last decade contracting by 0.4 percent. In December 2015, consumer goods spending contracted month over month for the first time since December 2012, therefore, it is quite likely that consumer goods production will continue to grow slower in 2016.
Electronics Production Growth Also to Slow
Real disposable income is an excellent leading indicator of consumer electronics spending (see above for the analysis of real disposable income). Real electronics spending never contracts in the U.S., but the rate of growth generally has decelerated since 1999 when it reached its peak of just over 30 percent. Since 1999, electronics spending has grown at a slower and slower rate on a steady trend line. The current annual rate of growth of 9.8 percent is one of the slowest growth rates since the mid-1990s. Electronics spending should maintain this rate of growth for another quarter or two, but then could decelerate even more because of the trend in disposable income.
Electronics production has followed a fairly similar path to electronics spending. Production reached its peak rate of growth in 1998 and has grown at a steadily slower and slower rate since. There were also two year-long periods of contraction during the last two recessions. Electronics production has grown at a decelerating rate for about a year now, and, other than the two contractions, the current annual rate of growth is one of the slowest in the last 40 years. Based on the leading indicators, it is likely that electronics production will continue in its trend of decelerating growth.