Are Consumers Happy, Will Continue to Spend?

Financial FAQs

I mentioned last week the big question remains, with March’s initial estimate of Q1 GDP growth, will consumers continue to maintain their share of consumption and continue to boost economic growth?

Today’s release of February and March Personal Consumption Expenditures tells us that consumer spending has picked up, but consumer (i.e., household) incomes not as much.

A 0.9 percent jump in consumer spending in March is 2 tenths higher than Econoday’s consensus. “Spending on durable goods was a soft spot in last week’s first-quarter GDP report but the monthly sequence looks favorable as spending for this discretionary category jumped 2.3 percent in March after contracting 1.1 and 0.1 percent in February and January.”

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Econoday.com

Wages and salaries, the key component for judging consumer spending, actually rose to a solid 0.4 percent and follows gains of 0.3 and 0.4 percent in the two prior months, but overall personal incomes rose just 0.1 percent, which include non-wage pension and benefit payments.

There are more reports coming out this week that will clarify whether consumers continue to carry the growth ball, but there is nothing else on the horizon to keep growth at the current 3 percent level, since business fixed investment decelerated to a relatively slow 2.7 percent gain, down from a 5.4 percent gain in the prior quarter. Corporations should be spending their profits on such capital expenditures to boost productivity and wages, rather than using it to boost stock prices.

Upcoming consumer confidence, construction spending, ISM manufacturing and non-manufacturing surveys this week, will give us a better picture of consumers’ financial state. They all lead up to Friday’s March unemployment report, and whether the very robust jobs market continues.

But the real boost in Friday’s GDP report was the unexpected boost to state and local government spending, as they ramped up infrastructure spending on roads and bridges, as Republicans have cut back on government expenditures to favor of tax cuts.

Bloomberg News reported as part of the GDP report, “The Commerce Department on Friday said state and local government spending increased at an annual rate of 3.9 percent in the first quarter, the most since the start of 2016, because of a “turnaround in investment, most notably in construction of highways and streets.”

That contributed to a better-than-expected jump in the nation’s gross domestic product that Trump was quick to trumpet, yet it happened because local government budgets have recovered and they wouldn’t wait longer for the promised federal infrastructure spending that has never materialized.

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Bloomberg.com

Once again, the bottom line is employment must grow at the current level for consumers to continue to spend. Friday’s report will also tell us if workers’ wages can continue to top 3 percent annual growth, something also presaged in last week’s GDP report.

Harlan Green © 2019

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

About populareconomicsblog

Harlan Green is editor/publisher of PopularEconomics.com, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
This entry was posted in Consumers, Economy, Keynesian economics, Politics, Weekly Financial News and tagged , , , , . Bookmark the permalink.

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