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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Mike “Mish” Shedlock
Noise analysts hard at work.
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That’s all they every do…….
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Zion National Park – Subway Trek Part One – Archangel Falls
https://mishmoments.com/2017/05/08/zion-national-park-subway-trek-part-one-archangel-falls/
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Great shot. Why the foliage color in spring?
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I love the Subway. Looks like you went from the bottom up and back instead of top down. Top down is a little more strenuous and you need to have a car staged at the bottom to get you back to the parking at the top. Top down has some rappelling involved (and maybe some swimming depending on the time of the year – will get wet to some degree regardless), but we found that generally it could be done without a harness. Not officially recommended, but certainly can be done.
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Bipolar Fed at work. Or is it schizophrenia..?
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What’s your problem America!!! It’s just a measly trillion dollars in revolving credit…an excess of another trillion in auto loans…over a trillion dollars in school loans… Even if you throw in your mortgage/rent, healthcare insurance, taxes, and living expenses, that $9.00 /hour wage should still give you plenty of spending power…
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It’s only expectations.
You know, like in going into a marriage………
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“spending growth expectations dropped sharply—falling to their lowest level since the start of our survey in June 2013”
…
No doubt some of this drop due to (cash out) mortgage refinancing window closing quite a bit from rate surge.
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“Economists base that belief on soaring consumer confidence numbers and on wage earnings growth.”
???
The latest –
“Real average hourly earnings increased 0.3 percent, seasonally adjusted, from March 2016 to March 2017. The increase in real average hourly earnings combined with a 0.3-percent decrease in the average workweek resulted in no change in real average weekly earnings over this period.”
https://www.bls.gov/news.release/realer.htm
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“Since January, the median look ahead spending projections fell from 3.13% to 2.58%, the lowest number since inception.”
…
January?
I remember January.
Trump Euphoria – repeal of ACA, tax cuts, deregulation, and $trillion infrastructure – raging.
How’s that working??
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Fiction requires a lot of reinforcement on an almost daily basis, whereas reality can stand on its own typically. Everything about our economy has come down to selling. Not making, not servicing, but SELLING the illusion. The government purveyors of policy need one thing above all others….the sense of control, and they will lie and manipulate any and all they can to achieve it. They are selling us every day and their massive analysis information agencies have but ONE job, and WE are it.
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Mish at the end of the day, it was consumer confidence that was the outlier. The only other outlier is the SPX, the rest of the hard data shows an economy going nowhere! think about it, aside from Student loans that exploded there is the car loan business, where nearly 35% of all new “leases” are for people who’s FICO score are bellow 600. Despite these “borrowers” the US car industry is channel stuffing at an almost unprecedented level.
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When people have little excess cash or borrowing power they do not spend.
I see lots of late model cars that will be good for at least 7 years.
I see lots of these cars being on 3 to 5 year leases.
I expect to get a great deal on a “certified” used car with a 100,000 mile warranty in the next two to three years. It will be my last car before going without owning or leasing any car.
Yes, there are people who are “confident” and willing to spend, but they are almost all part of the so called 1%. Many others who can spend will not as that is how they got the excess funds to spend. Another way to see this is that many of the “rich” got that way by shopping sales, the Dollar Stores, and Costco.
Bottom line is DEFLATION in many items and Central Banks buying equities and corporate bonds.
You never solve the problem of too much debt by more borrowing. But that is what the supporters of the status quo want and will get in the next two to four years. Then the sh** hits the fan.
Minsky was right.
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It is hard to imagine consumer spending to accelerate when consumer debt levels are so high.
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Absolutely. My family got out from under a rather large pile of that recently. Instead of garnering more with frivolous spending, we are socking it into maintenance or upgrading our home now. All expenses are covered prior to purchases too. It is all too easy for one wrong turn or accident to seriously set people back and I’ve no inclination to be among that again.
It takes brains, strong willpower, and focus to keep on course to get out and stay out of debt, and the majority of people do not have that anymore. Burdened with lack of financial knowledge, and the uniformed are doomed. Record levels of debt will be the norm until something crashes it, I guess. But what will that be is anyone guess.
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