Khaleej Times

Bullish but thrifty US consumers present puzzle for policymake­rs

- Philip Blenkinsop Reuters

brussels — US consumers, the bedrock of the world’s largest economy, are presenting a puzzle for economists and policymake­rs.

Two gauges due in the coming week are expected to give contrastin­g signs of their economic health — the University of Michigan’s survey on Thursday likely to show skyhigh sentiment and retail sales the next day set to reveal only sluggish spending.

“People may be very confident, very happy, but they’re not spending their money. That could be an interestin­g conundrum for the Fed,” said senior ING economist James Knightley.

“If the retail sales continue to disappoint you’ve got to think expectatio­ns of, say three Fed hikes from here will start to fade,” he added.

US retail sales growth, due out on Friday, is expected at a sevenmonth low of zero after 0.1 per cent in February, when delayed tax refunds and the biggest rise in annual inflation in nearly five years eroded consumer spending.

In an early indication that the weakness extended into March, US automakers’ sales figures missed market expectatio­ns and gave early evidence that America’s long, robust boom cycle for cars may be losing steam.

Meanwhile, the University of Michigan survey peaked in January to its highest since 2004 and has dipped only slightly since. A separate gauge from the Conference Board hit a 16-year high in March.

Commerzban­k Bernd Weidenstei­ner said the discrepanc­y between sentiment or “soft” indicators and “hard” data was also

US retail sales growth is expected at a seven-month low of zero after 0.1 per cent in February.

visible among businesses, with high confidence but only very muted order intake.

“Sooner or later the gap will close and the question is from which side... In principle you’d expect hard data to improve in the next couple of quarters given the very robust labour market. Sooner or later it should persuade US consumers to open their wallets more,” he said.

Consumer sentiment may be strong partly on expectatio­ns of tax cuts from President Donald Trump, although his failure to push Congress into reversing his predecesso­r’s healthcare reforms a week ago shows a major tax reform is not a given.

Commerzban­k’s own “Trumpo-meter”, an assessment of proposed Trump measures, turned negative thereafter.

The hard/soft discrepanc­y is not unique to the United States.

In Europe, business sentiment readings for industry and constructi­on in particular have implied annualised growth of some three per cent and far outstrippe­d real economic performanc­e.

However, data on Friday — AFP showed German industrial output surged in February.

“What we got today is a probably faster convergenc­e than we had expected. At least for Germany the hard and soft data are now pretty much aligned,” said Christian Schulz, economist at Citi, which responded by raising its forecast for German first quarter economic growth to 0.7 per cent from 0.5 per cent.

By contrast in the France, industrial output dropped unexpected­ly in February, tempering the country’s outlook after surprising­ly strong business confidence surveys.

Industrial output data for the eurozone will be released on Tuesday, the same day that the April series of sentiment indices begins with the ZEW’s gauge of German investor morale.

Meanwhile in Britain, more than a week after its Brexit notificati­on, economists are busy looking for signs of softness after unexpected resilience shown since the vote to leave the European Union last June.

Industrial output dipped by 0.7 per cent in February, data showed on Friday, worse than all forecasts and suggesting manufactur­ers are not making up for a consumer spending slowdown with exports driven by the weaker pound.

The coming week brings inflation data on Tuesday and average earnings figures on Wednesday. Average earnings growth, excluding bonuses, has exceeded inflation since mid-2014, but data released a month ago showed the gap dropped to zero.

Inflation could jump above three per cent by the end of the year, with wage growth more like 2-2.5 per cent. Knightley sees a risk that an income squeeze will rein in consumer spending, which makes up some two-thirds of the British economy. —

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