Tracking the consumer setup.

Real personal consumption expenditures (PCE) make up roughly 70% of real gross domestic product, thus the direction of consumer spending is critical to mapping out probable paths for domestic economic growth. To do this, we can track the monthly consumer spending data alongside other consumer data like income, savings rate, and credit use.

For the month of March, real PCE accelerated by 0.5% m/m, its fastest pace since January 2023. On a y/y basis, real PCE accelerated to 3.1%, up from 2.3% in the prior month. Durable goods spending accelerated to 4.3% y/y from 1.8% and non-durable goods accelerated to 3.0% y/y from 1.1%, while household consumption expenditures for services was unchanged y/y at 2.7%. One of the major demand dynamics we have highlighted in the past has been the lack of unit growth (i.e. inflation-adjusted spending), where consumers pay more and receive less. This kind of environment can have negative ramifications for businesses up and down the supply chain and could be seen in much of the logistics-related data we monitor going back to early 2021. An acceleration of unit growth from here would likely have a positive impact on other areas of the economy, which we will be watching for as we move through the second quarter.

Source: Macrobond. 

For further evidence of whether real consumer spending could continue accelerating, we can look at the broader consumer setup through real disposable personal income (DPI) and personal saving rate. In March, real DPI accelerated by 0.2% m/m, following a negative -0.1% print from February. The y/y growth rate slowed to 1.4% and will face tougher y/y comparisons through June before easing sequentially from July through October. At the same time the personal saving rate declined to 3.2%, its lowest level since October 2022. While consumer sentiment is typically less of an input to our overall macro process and can be noisy, it is worth noting that the University of Michigan Consumer Sentiment Index has leveled off to start 2024 and the Conference Board Consumer Confidence Index has declined.

Source: Macrobond. 

Next week, we will provide an update on consumer credit changes from the Federal Reserve’s G.19 report and what we have seen from bank earnings for Q1 thus far.

The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance.  The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.