Consumer Sentiment Declines; Consumer Spending Growth Slows

Consumer sentiment in the U.S. declined in April and national consumer spending slowed during the first quarter of 2018 to its weakest growth rate in nearly five years, according to new separate studies. Still, federal economic officials and some economists remain bullish on the American economy, expecting that recent federal tax cuts and the nation’s high employment rate will be among the key propellers of stronger growth this year.

On Friday, the U.S. Department of Commerce said that consumer spending increased at a rate of 1.1% in the first quarter – the slowest growth rate since the second quarter of 2013. Consumer spending drives about two-thirds of U.S. economic activity. Despite the tapering, U.S. gross domestic product accelerated 2.3% during the quarter. That was down, though, from 2.9% in the fourth quarter of 2017.

Nonetheless, some economists anticipate that lower corporate and individual/household taxes, combined with increased government spending, will lead to an increased growth rate in the second quarter and beyond, potentially helping the economy to hit the Trump administration’s goal of 3% growth for the year. Policymakers at the Federal Reserve said at a recent meeting that they “expected that the first-quarter softness would be transitory,” calling it, in part, a result of “residual seasonality in the data.”

Even so, consumer sentiment declined in April from March, according to the University of Michigan’s closely watched Surveys of Consumers. Released Friday, the report’s Index of Consumer Sentiment read 98.8 for April, down from 101.4 in March. Still, the April reading was about the monthly average for 2018, and up 1.9% from April 2017. Meanwhile, there were month-over-month declines in the Current Economic Conditions data (114.9, down from 121.2 in March) and Index of Consumer Expectations (88.4, down from 88.8 in March). Again, however, both index readings for April were better than the readings recorded in the same month a year ago.

“The best simple summary of the current state of consumer confidence is that the economy is ‘as good as it gets,’” said Richard Curtin, chief economist for the Surveys of Consumers. “While consumers do not anticipate an economic downturn anytime soon, the long expansion has made consumers (and economists) somewhat apprehensive about future trends. Overall, the data are consistent with a growth rate of 2.7% in real personal consumption in the year ahead.”