Even as the Federal Reserve agonizes over interest rates and the financial markets waver over the direction of the economy, consumers continue to show they’re willing to spend at a steady pace.
On Thursday the Fed said consumer credit rose in February at a seasonally adjusted annual rate of 5.8 percent, a gain of 17.2 billion, exceeding expectations.
MarketWatch said consumer credit has risen by 5 percent or more every month during the past year. It also said credit growth in January was revised upward, to a $14.9 billion gain, from a prior estimate of $10.5 billion.
Nonetheless, the financial markets had their worst week since early February, with the Dow Jones industrial average and the S&P 500 falling 1.2 percent and the Nasdaq composite index slipping 1.3 percent, although each of the indexes managed small gains on Friday as crude oil prices surged 6.6 percent.
“Worries about slower growth have increased, and rebounding oil prices may reduce the extra money in consumers’ pockets, removing one more support for consumer spending,” Kate Warne, investment strategist at Edward Jones, told MarketWatch on Friday in an effort to explain why the markets had a losing week.
Reuters said during the weekend that the business world could become focused this week on whether aggressive efforts to stimulate economies have driven inflation higher.
The Fed, the Bank of England and the European Central Bank have been disappointed about how little inflation has risen or, in fact, has gone in the opposite direction.
For developed economies, the worry is whether a several-month slowdown in growth will get in the way of what many central banks hope to see: pressure on inflation through wages as labor grows more scarce.
"The U.S. merits special attention," writes David Hensley, a director of global research at J.P. Morgan. "If the U.S. unemployment rate were to stabilize at 5 percent, the Fed would have much less incentive to hike rates unless this level of unemployment turns out to be low enough to generate a sustained rise in wage and price inflation, something Chair Yellen has expressed considerable skepticism about."
So far, measures of price pressures that strip out volatile energy and food prices have risen close to or even above where the Fed likes them, but they have shown little sign of climbing beyond that, so the central bank remains cautious about raising interest rates.
In government and private reports this week the American consumer’s voice will get another chance to rise above the din. The Commerce Department’s report on March retail sales will be released Wednesday, and the consensus forecast is that they rebounded from three consecutive months of declines to an 0.1 percent gain in March. When autos are excluded, the gain is expected to be 0.4 percent.
On Thursday, the Labor Department’s Consumer Price Index could reflect the increase in gasoline prices that has the markets concerned. The consensus forecast is that the index rose 0.2 percent and that the core CPI, which excludes food and energy prices because of their volatility, climbed by the same amount. Core CPI was up 0.3 percent in February.
Such an increase might have more of an impact on the stock markets, though, than on the Fed.
"While the CPI is a top-tier indicator for the financial markets, the near-term data may be somewhat less relevant, given [Chairman Janet] Yellen’s recent emphasis on the broader global economy," Deutsche Bank wrote, according to Business Insider.
On Friday, the University of Michigan will release its preliminary Consumer Sentiment Index for April. Economists expect a move upward in April to 92 from the final March reading of 91.
As Business Insider quoted Barclays, "Retail gasoline prices have flattened out in the past week and financial market volatility has broadly declined in recent weeks. As these factors have historically been positive for sentiment, we expect a modest move higher in early April."