Consumers — in a good mood, but not in the mood to spend

For the recreational marine and other industries that sell directly to consumers, the public’s continuing confidence in the economy is certainly a plus.
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For the recreational marine and other industries that sell directly to consumers, the public’s continuing confidence in the economy is certainly a plus.

With Congress focused to the point of distraction on the nation’s health care system, consumers might be expected to fret about the stalemate in Washington and be concerned about whether lawmakers can get anything accomplished that will help them.

The final June reading of the University of Michigan’s Consumer Sentiment Index was the lowest since Donald Trump was elected president, but “the overall level still remains quite favorable,” Richard Curtin, chief economist of the university’s Surveys of Consumers, said in a statement that accompanied the latest figure — 95.1, down from 97.1 at the end of May.

Curtin has been talking since the November election about how the survey’s results reflect the nation’s stark partisan divisions. Republicans are optimistic and Democrats pessimistic, largely because of their opinions of Trump.

Curtin said the gap in June between Democrats and Republicans was a yawning 39 points. The gap was 38 points in February, so nothing has changed. Independents remain optimistic. The index for them stood at 94.6 at the end of June.

“Surprisingly, the optimism among Republicans and independents has largely resisted declines in the past several months, despite the decreased likelihood that Trump's agenda will be passed in 2017,” Curtin added.

“The most important policies to consumers are those that directly or indirectly affect their jobs, incomes, or their financial security. Fortunately, increasing uncertainty about future prospects for the economy has thus far been offset by the resurgent strength in the personal financial situation of consumers. The combination of continuing improvements in personal finances and increasing concerns about the economic outlook is typical around cyclical peaks. Nonetheless, the data provide no indication of an imminent downturn, nor do the data provide any indication of a resurgent boom in spending.”

Government reports Friday underscored Curtin’s remarks. The Commerce Department said after-tax income rose 0.6 percent in May after adjusting for inflation, and U.S. News & World Report said that was the measure’s largest monthly gain in more than two years.

Consumer spending, though, rose just 0.1 percent for the month, its weakest result since February, despite the fact that the Personal Consumption Expenditures index, which the Federal Reserve prefers to use to track inflation, fell 0.1 percent. Consumers had increased spending power, but they did not buy more.

That does not bode well for second-quarter growth, although economists such as Scott Anderson, chief economist and executive vice president at Bank of the West, remain optimistic that the pay raises consumers are getting will soon translate to increased spending.

"It's been a long time coming, but more consumers are finally riding the wave of plentiful job opportunities, rising incomes and improving net worth," Anderson said in a research note Friday that U.S. News & World Report quoted in its story about the May income and spending figures. "Slowing price inflation for retail gasoline, cellphone plans and groceries should provide another boost to consumers' real spending power this quarter.

"Despite the weak start to the year and disappointing earnings from some retailers, don't count out the U.S. consumer. Consumer spending is still on a solid growth path."

The economy did grow faster during the first quarter than was originally thought. The Commerce Department said Thursday that growth was 1.4 percent, double the initial estimate. Still, the economy grew 2.1 percent at the end of last year as the Obama administration prepared to hand over the government to the new Trump team.

The Conference Board’s Consumer Confidence Index, the other major barometer of the public’s mood, rose moderately in June. The index stands at 118.9, up from 117.6 in May.

“Consumers’ assessment of current conditions improved to a nearly 16-year high,” Lynn Franco, director of economic indicators at The Conference Board, said in a statement that accompanied the latest reading.

“Expectations for the short term have eased somewhat, but are still upbeat. Overall, consumers anticipate the economy will continue expanding in the months ahead, but they do not foresee the pace of growth accelerating.”

Earlier in the week the Commerce Department said orders for durable goods fell 1.1 percent in May, declining for the second month in a row. MarketWatch said companies that were expecting relief from regulations and taxes may be watching and waiting now as the health-care debate continues.

This Friday the Labor Department will release the June jobs report. MarketWatch said economists’ median forecast is that the country added 174,000 jobs, up from an unrevised 138,000 in May, and that the unemployment rate ticked up slightly, to 4.4 percent.

The prediction also is that average hourly earnings rose 0.3 percent. That result would be up from 0.2 percent in May and continue the rising-pay trend that is generating optimistic consumer spending forecasts.

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