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Consumer Spending: Still Stronger Than Consumer Confidence

Americans are saying one thing and doing another


What consumers say and what they do don’t always match up. So, take Tuesday’s disappointing reading on consumer confidence with a grain of salt — at least when it comes to the all-important outlook for consumer spending.

U.S. consumer confidence logged a surprise drop in May to hit its lowest level in four months, as Americans fretted about the lackluster job market. The Conference Board’s confidence index dropped to 64.9, down from a prior revised reading of 68.7 and well below economists’ forecast of 69.4. Since payroll gains have slowed to their lowest level in about six months, no wonder folks are feeling down.

Furthermore, the measure of present conditions fell to 45.9, it’s lowest level since January and a steep decline from April’s reading of 51.2.

“Taken together, the retreat in the present situation index and softening in consumer expectations suggest that the pace of economic growth in the months ahead may moderate,” Lynn Franco, director of economic indicators at the Conference Board, said in a media release.

But don’t write off the outlook for consumer spending, which accounts for about 70% of GDP, just yet. A deeper look into the numbers and some other data suggest that consumers are still willing to spend.

For one thing, the Conference Board’s May index is at odds with the other big brand-name reading on the state of the consumer. Get this: Last week, the Thomson Reuters/University of Michigan consumer sentiment index hit its highest level since 2007.

The final index of sentiment notched its ninth straight gain to hit 79.3, up  from 76.4 the prior month and well ahead of economists’ estimate.  Moreover, a record number of respondents in the Michigan survey said they felt better about the jobs outlook. Go figure.

And as for opening up their wallets and purses, Americans told the Michigan survey that they had their brightest outlook on buying big-ticket items in years. The current conditions index, which reflects folks’ willingness to shell out for large purchases like cars right now, hit 87.2 in May, the highest level since January 2008.

Equally important, the Michigan survey’s index of consumer expectations six months out — the measure that gives the best idea of where consumer spending is headed — notched its highest level since the summer of 2007.

If it sounds like these confidence surveys talked to two totally different populations, consider that for all the doom and gloom in the Conference Board’s Tuesday reading, Americans said they still plan to consume. Indeed, the percentage of household planning to buy big-ticket items like cars and appliances actually increased in May.

Meanwhile, the actual spending data, while not gangbusters, has been decent. Consumer spending rose at an annualized pace of 2.9% last quarter, the best showing since the final three months of 2010. That will likely cool down with the slower rate of payrolls growth, but it won’t fall off a cliff. The National Association of Business Economics forecasts consumer spending to grow at 2.2% for all of 2012 and 2.3% next year.

Yes, those are subpar numbers for a subpar recovery, but they’re also par for the course. And the latest consumer confidence data don’t change the bigger picture. Americans are incrementally spending more these days — whether they admit to it or not.

Article printed from InvestorPlace Media,

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