The Consumer Has Been Strong…So Far

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What's going on?

The behavior of US consumers is extremely important to the world’s largest economy – and on Friday some mixed data came out regarding their spending and attitude.

What does this mean?

People in the US are spending a little more money buying things like clothes and appliances than economists thought: retail sales in January rose slightly versus December. And revised data from December showed that spending actually increased versus November rather than just staying flat (as the initial data reported one month ago suggested).

However, this data is only to the end of January. A survey of people’s attitudes towards economic health taken in early February suggested that people aren’t feeling as confident as they were in January. That means that, perhaps, they won’t be spending as much in February.

Why should I care?

The bigger picture: Economic growth rests on people spending their money. People buying and doing stuff – like buying insurance and shopping for appliances – makes up about two-thirds of the economy. So the health of the US consumer is incredibly important. And it’s important for the whole world’s economy as well, since the US is so big and the power of its consumer is so large. Since manufacturing (which makes up about 12% of the US economy) is struggling so much, any economic growth right now is likely to come from the consumer.

For markets: Markets had a very good day on Friday. Stocks globally have had a terrible year-to-date, but on Friday US stocks were up 2% while European stocks were up almost 3%. While the consumer data was taken, on the whole, as positive and likely contributed somewhat to the rebound, it was probably driven more by “sentiment,” e.g. short-term attitudes from traders, rather than this or any other fundamental data.

Originally posted as part of the Finimize daily email.

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