Consumer Stumble or Just a Pause?

Consumer spending accounts for 69% of Gross Domestic Product. Last week, the data on the household sector were mixed. The Conference Board’s Consumer Confidence Index surged to a 16-year high. Meanwhile, inflation-adjusted consumer spending has been tracking at below a 1% annual rate in 1Q17. Does this spell trouble for the consumer? Or is this merely the pause that refreshes?

The 3rd estimate of 4Q16 GDP growth showed a stronger gain in consumer spending (a 3.5% annual rate). A year ago, spending was soft, but rebounded into 2Q16. Monthly figures through February suggest that inflation-adjusted spending is tracking at below a 1% annual rate. That’s a sharp slowing, but doesn’t look too terrible following a strong fourth quarter.

The Conference Board’s Consumer Confidence Index surprised to the upside last week, rising to its highest level since December 2000. Other attitude measures have been mixed. Interestingly, the report on UM Consumer Sentiment continues to show a sharp division on political persuasion. Democrats are depressed. Republicans are downright giddy (which remains a positive factor for the stock market). Getting a representative sample is a key issue for consumer surveys. A shift one way or the other in the composition can skew results.