The Review — 01/12/2014 at 14:57

Strong Christmas Shopping Ahead, Predicts Morgan Stanley

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Merry Christmas from Morgan Stanley (MS): The Wall Street bank has a new measure of consumers’ spending power that it says points to “ending the year on a strong note.”

Paula Campbell Roberts, a consumer specialist on Morgan Stanley’s U.S. economics team, explains the new measure in a video released on Nov. 25. It gauges the ability of consumers to make discretionary purchases by summing up pretax income from wages and other sources, adding in borrowing from such sources as credit cards and home equity lines of credit and then subtracting mandatory expenses such as taxes, mortgage payments, and interest owed. The Morgan Stanley Consumer Liquidity Index “is based on the simple premise that consumers cannot spend what they do not have,” the bank said in a white paper last week introducing the quarterly measure.

Morgan Stanley claims the index has a correlation of more than 90 percent with personal consumption expenditures adjusted for inflation. Based on the latest reading, the bank predicts spending in the current quarter should be 2.9 percent higher than a year ago, adjusted for inflation—a number consistent with the National Retail Federation’s forecast of a 4.1 percent increase in holiday sales. That forecast covers two months rather than three, applies to retail rather than overall consumer spending, and isn’t adjusted for inflation.

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