One of the most enduring stories of the record economic expansion that has marked the past decade has been the resilience of the U.S. consumer. And where the consumer goes, powering roughly two-thirds of the GDP, so goes the economy.
The expansion has had legs, though momentum is slowing. And amid Thursday’s stock market rout – an extension into a week that has seen global holdings reduced by trillions of dollars – GDP numbers have been revised, showing mixed puts and takes for the fourth quarter of last year.
The sky is not falling for the U.S. consumer, though the sky is darkening – at least a bit.
Data from the Commerce Department shows that at the end of the day, GDP grew by 2.1 percent annualized (and by 2.3 percent for all of 2019), which remains unchanged from what was originally reported – and the revision met expectations.
Looking Backwards – And Forwards – At The Consumer
Drill down a bit, and the news is decidedly more nuanced. Non-residential fixed investment showed a 2.3 percent slide (where the original report had been a 1.5 percent drop). This is the third straight decline for that metric, and on pace to be the biggest drop since 2015, Bloomberg noted.
This represents the investments that private companies make in property and plant, and in software and equipment. Such a significant slide shows that firms continue to throttle back on expansionary plans. By doing so, they may also be scaling back the very tailwinds that will underpin future top-line growth, which translates into higher wages and pace of hiring.
Beyond the business-related spending of the fourth quarter, it’s likely that business-related inputs to GDP will see softer showings this late into the quarter, which in turn may be a headwind for GDP growth in the period.
Perhaps more alarming was the fact that consumer spending was revised down, just a bit. The spending growth rate was estimated at 1.7 percent, down from 1.8 percent.
Is the sky falling? Not necessarily – the signs don’t indicate that spending will fall off a cliff. Even in the midst of the Coronavirus news that has rocked supply chains and retailers, particularly in the luxury goods and tech segments, the consumer confidence index released by The Conference Board for February showed a reading of 130.7 in February, up from 130.4 in January. That was lower than estimates of 132.6.
In a statement accompanying the consumer confidence data – which is fresher than the backward-looking Q4 data – Lynn Franco, senior director of economic indicators at The Conference Board, said that “consumers’ short-term expectations improved, and when coupled with solid employment growth, should be enough to continue to support spending and economic growth in the near term.”
And in another takeaway from The Conference Board’s survey, the “expectations index” was up to 107.8 in February, up from 101.4 in January. That index measures the short-term views consumers have about their income and employment prospects. It’s possible the stock market rout may dent consumer confidence a bit, but the resilience is still there – at least according to recent data.