Economy Watch: Minimal Consumer Spending Growth Signals Less Confidence

April ended with only minimal growth in consumer spending as their expectations for future economic growth weakened.
Credit: University of Michigan Survey of Consumers, April 2016
Credit: University of Michigan Survey of Consumers, April 2016

Without growing income, retail spending is going nowhere, so it’s reasonably good news that U.S. personal income increased $57.4 billion, or 0.4 percent, in March according to the Bureau of Economic Analysis on Friday. On the other hand, consumers have to feel confident enough to go out and spend.

Spending growth wasn’t so robust in March. Personal consumption expenditures (PCE, or the government’s shorthand for consumers out buying goods and services) increased $12.8 billion, or only 0.1 percent for the month. Real PCE—PCE adjusted to remove price changes—increased less than 0.1 percent in March, compared with an increase of 0.3 percent in February.

Separately, the University of Michigan reported on Friday that consumers are in something of a funk. The university’s Index of Consumer Sentiment ended April at 89.0, down from 91.0 at the end of March, or a 2.2 percent drop. Compared with a year earlier (95.9 in April 2015), the drop was 7.2 percent.

The survey found that consumer sentiment continued its slow decline in late April due to weakening expectations for future growth, although their views of current economic conditions remained positive. All of the April decline was in the expectations component, which fell by 4.8 percent from one month ago and by 12.6 percent from a year ago. Possibly, the university posited, people are spooked by the unusual temper of the election campaign.