United States: weakness in consumer spending probably only temporary

CHART OF THE WEEK

Consumer spending in February fell 0.1%, marking a second consecutive monthly drop. As a result, the contribution of spending to first-quarter growth is just 0.3%, which will likely result in disappointing GDP figures. Underwhelming growth numbers at the start of the year have now become a common occurrence.

OUR ANALYSIS

Issues with fully adjusting for seasonality effects could explain some of the weakness. In a recent(1) article however, Federal Reserve Bank of Cleveland Economist, Kurt G. Lunsford, has shown that the proven trend of underwhelming first-quarter growth numbers depends more on other demand components.

The most likely explanation is that the data reflect the temporary impact of various specific shocks, such as the correction in car sales for January following what was an extremely strong December, or lower residential energy spending. In fact, household disposable income levels have accelerated in recent months, driven by wages. Annualised disposable income growth is at its highest level in two years and, as a result, in the space of just two months, the savings rate has jumped from 5.2% to 5.6%. In addition, consumer confidence remains robust, as the figures published last week by The Conference Board show: the index stands at its highest level since December 2000.

(1) Lingering Residual Seasonality in GDP Growth, Kurt G. Lunsford, Federal Reserve Bank of Cleveland Economic commentary 2017-06.

The opinion expressed above is dated April 3rd, 2017, and is liable to change.

 

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Julien-Pierre Nouen

Directeur des études économiques et de la gestion diversifiée