The overall mood of consumers remains upbeat and shows little sign of faltering. That bodes well for consumer spending in the coming months and could be further supported by stronger wage growth.
The University of Michigan’s Consumer Sentiment index fell in April to 98.8, but the revised data indicated less softening than previously estimated earlier in the month. Even so, the index remains very close to its average level in 2018 and still clearly signals a very upbeat mood among U.S. consumers.
Strong labor market conditions, strengthening wage growth, and better household financial positions are all supportive of consumer confidence. Further, all should continue to boost consumer spending in the coming months.
Other recent data generally point to continued economic growth. Initial jobless claims remain exceptionally low and overall job market conditions remain quite positive for workers. The employment cost index for the first quarter clearly illustrates that labor costs are rising at a faster pace, consistent with a market in which the competition for skilled labor is intensifying. That can present a challenge for employers, but is a positive for wage growth and household income.
Consumer spending growth softened in the first quarter – a key reason that GDP growth also faltered based on the first estimate released this morning. It’s hard to read too much into that estimate, however, as Q1 GDP growth results have been persistently soft over the past decade. Despite that, improvements in the balance of trade and a buildup in inventories helped to offset weaker consumer spending, sufficient to sustain growth of 2.3% in the first quarter.
All things considered, the economy still appears to be on a solid footing, supported by a confident consumer sector – one with an optimism that is fueled by growing income and a strong labor market and is well positioned to spend more in the coming quarters.
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