- The economy is slowing and consumer confidence is weakening but the consumer keeps spending, for now.
- The economy gave us a head-fake of 3.1% growth in the first quarter, but we are likely to see only 1.5% growth in the second quarter.
- Consumer confidence has weakened as concerns about the future begin to increase.
The economy is slowing and consumer confidence is weakening but the consumer keeps spending, for now, though less on vehicles since retail auto sales are declining.
Economy slowing: The economy gave us a head-fake of 3.1% growth in the first quarter, as that growth on paper was supported by growth in inventories and exports, which are unraveling this quarter. We are likely to see only 1.5% growth in the second quarter. Last year we saw 4.2% growth in the second quarter, so the year-over-year contrast is significant.
Consumer spending: The consumer continues to spend more, but we are not seeing the same pace of spending growth as last year as a result of disposable income no longer growing as rapidly.
Weaker consumer confidence: Consumer confidence has also weakened as concerns about the future begin to increase. Plans to purchase autos has been volatile this spring and now appears to be heading down. Plans to purchase a home are rising as mortgage rates are falling, but we have yet to see a clear material uptrend emerge in home sales. With low inflation, a Fed rate cut is more likely in the months ahead, but lower rate policy may not boost consumer demand if consumer sentiment falls.
Looking ahead: This week we’ll know the results of the past weekend’s G20 meeting and June employment numbers. We’ll also see June and first-half vehicle sales. Cox Automotive forecasts June sales volume will decline nearly 2.7% for a SAAR of 17.2 million.