The Fed and most economists are convinced robust growth in consumer spending is just around the corner.

Economists base that belief on soaring consumer confidence numbers and on wage earnings growth.

The curious thing is the Fed does not believe its own survey of spending growth projections.

Every month the New York Fed conducts a survey of consumer expectations (inflation, spending, wage growth, income, home prices, jobs).

Consumers’ Optimism about Their Overall Financial Situation Climbs to Series High

The April survey shows that while household income growth expectations increased and respondents’ outlook for their households’ overall financial situation reached a new series high, spending growth expectations dropped sharply—falling to their lowest level since the start of our survey in June 2013. Inflation expectations increased at both the one-year-ahead and three-year-ahead horizons, while inflation uncertainty declined.

The Fed provides charts for inflation expectations, the labor market, and household finance but not spending expectations. I downloaded the data and produced this interesting chart.

Consumer Spending Expectations

High = Top 25%
Low = Bottom 25%

Spending Expectations Plunge

2017 Consumer Spending Expectations
1/1/2017 3.13 0.23 9.11
2/1/2017 3.19 0.28 9.01
3/1/2017 3.29 0.67 7.38
4/1/2017 2.58 -0.04 5.91

Spending Expectation Synopsis

  • Since January, one-year look ahead spending expectations of the top 25% plunged from 9.11% to 5.91%.
  • Since January, the median look ahead spending projections fell from 3.13% to 2.58%, the lowest number since inception.
  • Low-end spending expectations are in negative territory for the first time.

The New York Fed survey, at least in regards to spending, has been reasonably accurate.

Nonetheless, the Fed places its faith in consumer confidence numbers that have been proven to track the stock market, not consumer spending.

Financial Situation New Series High? 

The opening blurb of the report says “respondents’ outlook for their households’ overall financial situation reached a new series high“.

I cannot find a category for “overall financial situation” on the Excel spreadsheet.

Is that some sort of aggregate (fictional) hashing of various other categories to derive the desired result?

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  3. May 6: US “A Little Beyond Full Employment”, Says San Francisco Fed President
  4. April 13: Econoday Parrot Squawks Again after Sentiment Rebounds to 17-Year High
  5. March 21: Consumer Sentiment Statistical Noise: Modern Day Snake Oil

Mike “Mish” Shedlock