Consumer Spending and Consumer Sentiment. (Photo: AP)
The Survey of Consumers, a closely-watched gauge of consumer sentiment, was slightly off the mid-month reading but still at the highest since 2004. The Current Economic Conditions Index, at 121.2, was also down from the mid-month but still sets an all-time record high.
The slightly decline to 101.4 came from concerns over tariffs, which have been amplified by the media.
“Importantly, all of the March gain in the Sentiment Index was among households with incomes in the bottom third (+14.1); those in the middle third were unchanged, while the Index fell among households in the top third (-5.6),” Richard Curtain, chief economist at Survey of Consumers said.
“Households with incomes in the top third cited significantly greater concerns with government economic policies than last month, especially trade policies, with net references falling from +31 to just +1, offsetting their positive reactions to tax policies.”
The Federal Open Market Committee (FOMC) expectedly raised the federal funds target rate by 25 basis points last week, with two more interest rate hikes forecasted in 2018. Consumers expect interest rates will increase in the foreseeable future and view the current level as still relatively low. They also believe future interest rate hikes are intended to dampen the future pace of economic growth.
“Their reaction will both emphasize borrowing-in-advance of those expected increases as well as heighten their precautionary savings motives,” Mr. Curtain added. “The trade-off between spending and saving will crucially depend on the pace of future interest rate hikes compared with the pace of income growth. It is likely that income growth will initially dominate, tilting consumers’ motives more toward spending than saving.”
Overall, the data indicates a growth rate of 2.6% for consumption from mid-2018 to mid-2019. The next data release — the preliminary reading for April — is scheduled for Friday, April 13, 2018 at 10:00 AM EST.
