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March 15, 2019 Blog 2 min read
Manufacturing output declined again in February as the economy cooled. Still, the consumer mood rebounded in March, particularly among lower-income households.

3-15 Consumer Sentiment Chart

The slowdown in the economy has been apparent across a broad range of indicators for some time. Not surprisingly, it’s also being felt in the manufacturing sector, where output declined for the second consecutive month in February.

Industrial production rose by a slim 0.1% in February, moderately lagging expectations for a pickup of 0.3-0.4%. That increase was solely attributable to output at the nation’s utilities, as inclement weather across much of the country drove higher demand for heating.

Manufacturing output declined by 0.4% last month, confirming previous indications that the sector was feeling the impact of slowing demand.

Still, the economy appears to be on a growth track – even if that growth is slowing. That isn’t lost on the consumer sector, where sentiment actually rose in the past month, driven by a more optimistic outlook for lower and middle-income households.

The University of Michigan survey of consumers for March revealed a solid rebound in the aggregate consumer view on both current economic conditions and near-term expectations. The index rose from 93.8 in February to 97.8 for the current month, with that improved mood most notable among lower-income households. It is that group that is most likely to be positively impacted by the strong labor market conditions.

With recent indications that wage growth is accelerating, those households that view the size of their paycheck as a key indicator of their financial well being are understandably more optimistic. Also supporting the upbeat demeanor of the consumer sector is tepid inflation, which enhances the spending power of those growing paychecks.

Although a range of measures of consumer confidence have retrenched from their recent highs, the overall mood remains quite positive. That mindset should provide solid support for consumer spending, further fueled by growing wages for a broad swathe of the nation’s workers.

By any number of measures, the economy is slowing, but still growing. First quarter GDP numbers are likely to be quite soft, not only because of the loss of momentum, but also as a result of the government shutdown and residual seasonal factors that typically skew first quarter reports to the downside. Still, growth should rebound sharply in the second quarter.

The bottom line remains largely unchanged. The risk of a recession in the near term, while higher than it has been, still appears quite low.

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