Improving Consumer Outlook Could Boost Dairy


By Fran Howard

U.S. consumers are starting to feel better about their employment opportunities as well their bank accounts as wages and job openings rise rise and gas prices tumble. Improving consumer confidence could help support—or even boost—dairy product prices at a time when exports are expected to remain weak.

“The summer driving season has officially come to a close, and the national average price for regular gasoline was $2.29 per gallon on September 22, the lowest price for this time of year since 2004,” says Sarina Sharp, agricultural economist with the Daily Dairy Report.

AAA estimates that Americans spent $65 billion less on gas in the first half of the year than the same period in 2014, and savings over the Labor Day weekend alone totaled $1 billion. By the end of the year, fuel savings should top $100 billion, according to AAA. That’s money consumers can spend elsewhere. But some economists remain cautious.

“While consumer spending is likely to power the economy supported by ongoing reduction in labor market slack and low gasoline prices, a large first-half inventory build is a negative for second-half growth,” says Creighton University economist Ernie Goss in the September issue of his monthly newsletter. “Greater volatility in oil prices at the lower end of the range solidify gains for consumers but will also continue to weigh on energy investment activity. And a slow global economy means slow export growth even if the effects of the stronger dollar begin to run their course."   

U.S. consumer spending rose 3.5% in July, while the U.S. savings rate rose 4.9%, compared to July 2014. “This suggests that Americans are not only beefing up their bank accounts, they have also been spending a portion of their fuel savings to satisfy their growing appetite for dining out,” notes Sharp. Spending at restaurants and bars rose to $53.4 billion in July, an increase of 9.8% from a year ago. August’s consumer spending report will be released later this month.

“The American consumer, however, is not feeling flush with cash,” says Sharp. “And consumer caution is understandable. While the economy has been slowly improving for years, wages were almost stagnant until just a few months ago.” Wages began rising since April, and Sharp says the gains could accelerate this fall.

“Employers are struggling to fill open positions, suggesting that they may need to raise salaries to attract qualified applicants,” notes Sharp. “As paychecks rise, and as Americans gain confidence in the job market, those who are still pinching pennies are likely to be more willing to go out to dinner, order a pizza, or splurge on a latte. Rising wages could augment the already robust domestic demand for dairy products by supporting U.S. dairy markets—despite lagging exports and much lower prices overseas.”


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