Bank of the West U.S. Outlook Report for October 2, 2015
US Outlook Report: The U.S. Consumer Hangs In There – For Now
We got encouraging reports this week that consumers continued to spend at a rapid clip in August and their confidence in September may not be as dented by global market turmoil as stock market behavior implies.
The Conference Board’s Consumer Confidence Index improved again in September to 103.0, bucking several other consumer confidence measures that show anxiety rising along with financial market volatility. The Present Situation component of the Conference Board’s measure of consumer confidence hit another expansion high this month and is now at its best level in eight years. On the other hand, the future for consumer spending might not be as bright as the recent past as the expectations component of the consumer confidence measure has been trending modestly lower since January.
So what’s helping the U.S. consumer look past recent downbeat financial market headlines? Real income growth picked up in July and August to over 4.0%on an annualized basis as inflation slowed, this gives U.S. consumer spending some much needed room to run a little hotter.
We currently estimate third quarter consumer spending will increase at a 3.6% annualized rate, among the strongest growth seen in this expansion.
Even so, we had to cut our Q3 2015 GDP estimate to 1.8% at an annualized rate this week due to an advanced trade in goods report for August, released by the Census Bureau which flags a large drop in goods exports and a big increase in goods imports on the month. This sets the U.S. economy up for meager export growth of around 1.4% annualized in the third quarter, while imports are expected to jump 3.9%. A drop in inventory growth will also be a big drag on GDP growth this quarter.
For U.S. GDP to return to 2.0% plus growth in the quarters ahead, we need consumer spending growth of 3.0% or better to continue for a while longer. That still looks achievable given this week’s unblemished reading on the health of the consumer.
To learn more, check out this week’s US Outlook Report.
Tags: economy