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Monday Update: Consumers Confident, Just Not Spending Much

Written by Brad McMillan, CFA®, CFP® | Apr 3, 2017 6:27:25 PM

Last week’s data was generally positive, showing that consumers are feeling better and earning more. Surprisingly, spending growth continues to be weak, but that’s probably due to weather. Overall, it was a good week, but not one that significantly changes expectations going forward.

A look at last week’s data

The reports last week were all about the consumer.

The Conference Board’s Consumer Confidence Index once again shocked to the upside, increasing to 125.6—the highest level since the end of 2000. The index was expected to drop from 114.8 to 113.4. Increases in confidence are typically tied to faster growth, so this is a very positive sign.

The personal income and spending report was healthy but not nearly as strong. Personal income growth for February came in at 0.4 percent, as expected, with an upward revision of the previous month from 0.4 percent to 0.5 percent. Personal spending growth disappointed, dropping to 0.1 percent from 0.2 percent the previous month. This was not totally unexpected, however. Lower utilities spending and gasoline prices continued to depress spending growth, despite strong demand, suggesting weather was mostly at fault.

The discrepancy between the soft data (surveys) and the hard data (what people are actually doing) is a worry, but improving confidence should continue to support growth. If spending continues to be weak, we'll have reason for greater concern, but for the moment, signs remain good.

The week ahead

This week’s data will focus on business.

The ISM Manufacturing Index, which covers production businesses, was released this morning. The March reading declined slightly, from 57.7 to 57.2, beating expectations for a larger decline to 57.0. This is still a relatively high level of sentiment and bodes well for continuing growth.

Tomorrow, the international trade report is expected to show a slight decrease in the U.S. trade deficit, from $48.5 billion to $46.5 billion, as the Chinese New Year trade distortion fades from the data. The lower deficit is good news and should be positive for first-quarter growth.

On Wednesday, the service sector will report in with the ISM Non-Manufacturing Index, which is expected to decline slightly, from 57.6 to 57.0. As with the manufacturing survey, this would still be a relatively high level and one indicative of continuing growth.

On Thursday, the minutes from the March meeting of the Federal Open Market Committee will be released. Given the Fed’s decision last month to raise rates, the minutes may shed light on when and how the next increases will come—specifically, does the Fed plan to hike in June as well? Markets will also be looking for clues as to how and when the Fed plans to start winding down its balance sheet.

Finally, the big news of the week will be the employment report for March. The strong growth of the first two months of the year is likely to drop back, with expectations for 174,000 new jobs. Although down from 235,000 in February, this would still be a healthy growth rate. The employment rate is expected to stay at 4.7 percent, while wage growth is expected to tick up from 0.2 percent to 0.3 percent. If jobs meet expectations, this would be another healthy report, indicative of sustainable growth.

Have a great week!