Everyone seems bullish on our economy when you look at confidence and sentiment data. This would typically be a great indication of forward looking consumption, but what does it mean in our current environment?
Stock markets are near all-time highs and corporate earnings have rebounded strongly in the last two quarters. What you likely are not hearing is that the earnings rebound can be attributed in large part to a rebound in oil prices. Also, a short-term trend of currency stabilization has helped as well. Unfortunately, there are concerns on the horizon as we look at the relationship between some leading indicators.
Consumer sentiment has risen from 89 to 97 over the last year. Consumer confidence has climbed from 94.7 to 120.3. Both of these should lead to increases in consumer spending; however, they are not. In the last 12-months retails sales have grown at a meager 0.23% average per month (with the last 2 months being in negative territory). Personal spending as a whole not only averaged 0.33% per month over the last 12 months; it decreased rather steadily over that time and landed at 0.0% last month.
So, while leading indicators of sentiment have indicated future growth, that sentiment has not actually translated to consumer spending. Something is holding the consumer appetite at bay right now. That is concerning as the consumer represents over 2/3 of GDP. It may be cautious optimism as consumers await the results of campaign promises. It may also be the impact of mild inflation after years of it being negligible. Whatever the cause, the disconnect between how people feel and how they spend is real and something to watch in coming months.
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[1] consumer spending – © Ahmed Aboul-seoud Dreamstime Stock Photos