by Jim Baird on May 15, 2012
CPI unchanged in April as energy costs decline
The Consumer Price Index (CPI) was unchanged in April, a slower pace than the previous month as energy costs declined. Year-over-year, the CPI continued to trend lower, dipping to 2.3%. Core CPI, which excludes food and energy prices, remains on an uptrend, rising another 0.2% during April to reach 2.3% on year-over-year basis.
The energy component of the index fell during the month, led by a 2.6% decline in gasoline. Reduced prices at the pump have provided some relief to household budgets and contributed to a boost in consumer confidence of late. However, April retail sales only rose by a modest 0.1%.
Even with inflationary pressures easing moderately since late last summer, consumers remain inhibited by mediocre income growth. The recent improvement in confidence measures notwithstanding, households have resorted once again to reducing their savings in order to spend a bit more freely. That tactic can bridge a temporary gap, but stronger personal income growth is still an elusive ingredient to a sustainable improvement in household budgetary conditions, confidence, and spending.
Recent data suggests that overall economic activity may be slowing anew, but the economy still appears to be growing sufficient for job creation to continue, albeit at a slower pace.
Reduced inflationary pressures are a positive, but there are still some causes for concern. The global economy continues to slow, creating a headwind to U.S. growth as well. Questions also remain about whether or not demand from winter months were overstated due to distortive seasonal adjustments, while the unseasonably warm weather throughout much of the country may have merely pulled forward the typical spring spending surge. Recent data suggests that those concerns may have been legitimate, and data over the next few months should reveal whether consumer demand can remain robust as those tailwinds dissipate and are reversed.
by Jim Baird on May 11, 2012
Consumer sentiment edged up, surpassing expectations
The mood of U.S. consumers, as measured by the University of Michigan Consumer Sentiment Survey, improved modestly in May to 77.8. Expectations were for the index to decline fractionally. Mixed results in employment data have contributed to renewed worries that the economy may be softening. Both jobless claims data and nonfarm payrolls have slipped in recent months, although both remain in territory consistent with a growing economy.
Falling prices at the pump have also boosted spirits at the margins. While oil and gas prices remain elevated, reduced demand expectations resulting from slower global growth and a temporary easing of tensions in the Middle East have contributed to a decline in prices, easing pressure on consumer pocketbooks.
The recent increase in outstanding consumer credit reflects both an increased willingness by bankers to lend and a renewed appetite by consumers to borrow. Consumers remain more judicious about their spending habits than was the case in the period leading up to the Great Recession. Nonetheless, increased borrowing in recent months suggests that households may be feeling a bit more confident in their personal financial circumstances and a bit more willing to spend more freely.
The missing ingredient remains income growth, which remains mediocre. Disposable personal income growth remains limited, but on an inflation-adjusted basis has been virtually non-existent. While consumers can borrow or reduce savings to increase spending in the short-term, stronger income growth will be needed over the intermediate-term to allow households to continue to adequately address their debt burden and savings goals.
While we still see a number of risks to the economy, continued improvement in consumer sentiment remains a positive development that has the potential to contribute to sustained spending growth and a virtuous cycle that should benefit the broad economy and the jobs market.
To see news coverage featuring Jim’s comments, please visit the following sites:
Consumer Confidence Up: Solid Jobs Growth Or Crashing Expectations Ahead (Forbes)
Stocks Turn Around, Despite Trading Loss (New York Times)