Rebound expected after weak first-quarter growth

The root of the problem was that consumer spending rose just 0.3 percent.
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The headline news about the U.S. gross domestic product was that it rose just 0.7 percent in the first quarter — the slowest pace in three years — but the sluggish growth appeared to be attributable to circumstances that are likely to fade as spring weather grows warmer.

The root of the problem was that consumer spending rose just 0.3 percent. That was the smallest gain since 2009 and a dramatic decline from a 3.5 percent increase in the fourth quarter last year, MarketWatch reported.

Unseasonably warm weather in February was a factor as people spent less on fuel to heat their homes and bought fewer of the cold-weather clothes that retailers were hoping to move during the latter half of the winter.

Separately, the government was slow to put income tax refunds into consumers’ hands because it was trying to prevent tax fraud. Now people have those dollars at a time of year when home improvement needs and summer vacation preparations, among other things, typically prompt people to spend.

“There’s no cause for concern,” Ryan Sweet, an economist at Moody’s Analytics Inc. in West Chester, Pa., told Bloomberg, adding that consumers “had a little bit of a hangover, and they’ll bounce back in the second quarter. The key will be wage gains — we need strong wage-growth support for spending going forward.”

American consumers’ improved finances have been reflected for some time in a healthy housing market. The Commerce Department said last week that new-home sales rose 5.8 percent in March, to a seasonally adjusted annual rate of 621,000. The performance represented an eight-month high.

"Strong demand from home buyers and very tight supply conditions in the overall housing market are fueling demand for new homes," Tian Liu, the chief economist at Genworth Mortgage Insurance, said in a note quoted in a story in Business Insider. "Prices on new homes are stabilizing, suggesting more affordable homes are coming to the market, which will help builders capture more demand from first-time home buyers."

Consumer confidence remained high, although it slipped a bit in two major surveys released last week. The Conference Board’s Consumer Confidence Index fell to 120.3 in April from 124.9 in March — the highest reading since December of 2000 — and the University of Michigan’s Consumer Sentiment Index for April edged down to 97.0 from a mid-month reading of 98.0.

“Consumer confidence declined in April after increasing sharply over the past two months, but still remains at strong levels,” Lynn Franco, director of economic indicators at The Conference Board, said in a statement. “Consumers assessed current business conditions and, to a lesser extent, the labor market less favorably than in March. … Despite April’s decline, consumers remain confident that the economy will continue to expand in the months ahead.”

One economist said the continuing stalemate on legislation in Congress during the early months of the Trump administration may be starting to affect the way the public thinks about the direction of the country.

"Consumer confidence is starting to reflect the realities of governing, not the hopes that the swamp will be drained," Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pa., told Reuters. "The failure to implement any real policy changes has made people a little more uncertain about what will actually get done."

Nonetheless, Richard Curtin, chief economist of the University of Michigan’s Surveys of Consumers, said in a statement that the university’s survey showed “consumer sentiment continued to travel along the high plateau established following Trump's election.”

“There was widespread agreement among consumers on their very positive assessments of the current state of the economy, as well as widespread disagreement on future economic prospects,” Curtin added. “Although the partisan divide has slightly narrowed in recent months, it still reflects a very pessimistic economic outlook among Democrats and a very optimistic outlook among Republicans.”

Curtin said “the partisan extremes will continue to add uncertainty and instability to consumer spending during the year ahead.”

This week, economy watchers will see the April jobs report from the Labor Department on Friday. Economists’ consensus forecast is that the country added 190,000 jobs, up from a disappointing 98,000 in March, a figure that is likely to be revised upward. Separately, the Federal Reserve will release its report on consumer credit for March on Friday.

Today the April data on motor vehicle sales will go out, and the forecast is for sales at a seasonally adjusted annual rate of 17.2 million, up from 16.5 million last month.

The Federal Reserve’s policy-making Federal Open Market Committee is meeting today and Wednesday. Reuters said the Fed is unlikely to raise interest rates at the meeting, especially after news Monday that consumer inflation and factory activity were tame in April, although economists expect a rate increase in June.

"We don't expect [the weak reports] will prevent the Fed from hiking interest rates again at the June meeting, at least not as long as employment growth rebounds in April and May," Paul Ashworth, chief U.S. economist at Capital Economics in Toronto, told Reuters.

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