Consumer confidence may be soaring but consumer spending has barely moved since last month.
The Bureau of Economic Analysis released its latest report on March 31, which showed a 0.1% increase in consumer spending from last month, a slight disappointment from the 0.2% expected.
A historically warm winter decreased service bills, such as utilities, which make up a large chuck of consumer spending. “But that’s only temporary,” said David Sloan, senior economist at 4CAST-RGE in Manhattan. “We had worse weather in March. The numbers should rebound next month.”
Consumer spending makes up two-thirds of the GDP. While retail and auto sales took a dip in recent months and gas prices fell in January, the short-term figures do not represent a significant trend. Economist predict as gas prices once again begin to drop, and consumers have more disposable income, consumption levels will pick up.
But the brief plateau in spending has not affect confidence levels. Consumer confidence, measured by surveys conducted by the U.S. Consumer Confidence Index, or the Conference Board, has increased to some of its highest number since December 2000. The Consumer Confidence Surveys contain confidence levels that soared more than 11 points higher than expected.
“It’s almost euphoric,” said Mike Englund, an economist in Boulder, Colorado. “They’re quite spectacular. There’s been a remarkable surge since the election. It’s ironic because most people viewed the election as choosing between two bad choices.”
The confidence surveys were especially evident for individuals in high income brackets, such as those making more than $125,000 a year.
“People are optimistic,” Sloan said. “Confidence picked up after the election. I think people are expecting tax cuts and changes in the fiscal policy with Trump.”
Meanwhile, personal income rose 0.4% as expected and the most recent jobs report showed unemployment to be at a low 4.7%, signaling an otherwise steady economy.
“The economy is healthy,” Englund said. “Consumption is down but this is not a problem as long as spending grows faster than the economy.”
But as tax season winds on and people begin to receive their income tax returns, fewer people say they will indulge in surge purchases, but rather use the money for necessities — perhaps another sign of uncertainty with an unpredictable president. In fact, according to a recent survey by Bankrate.com, only 6% of those expecting an income tax return said they will spend it extravagantly.
Retailers who were hoping to gain from income tax returns may also be sorely disappointed. For the first time ever, the Federal government postponed income tax refunds for low income earners who are eligible for the earned income credit until Feb. 15 because of previous issues with fraud.
“This lead to a lot of people not even filing because they didn’t think they were going to get a return,” Englund said.
Still, of the 153 million people filing taxing this year, nearly 70% will get a refund. Many say they will be spending their income tax returns buying things they need, such as stables, and paying off old debts, further helping sustain a steady stream of cash in the economy.
“I have to be an adult this year and save my tax return for rent, car insurance, car payment, credit card payments and gym membership — and student loan bills,” said Molly Moser, a social media strategist in Carson City, Nevada. “But I think this will help me save in the long run.”
Englund agreed that most economists still expect people to spend most of their income tax returns.
“It’s hard to predict people’s behavior,” he said. “But most economists assume those on the low end of the income bracket will spend their whole return by virtue of the fact that they don’t have savings.”
With a stable economy, the Federal Reserve is expected to raise interest rates at least twice more this year. In March, benchmark interest rates increased by a quarter of a percentage point for the first time since the recession.
In the meantime, most Americans are still using credit cards as much as ever. In fact, credit card debt reached a record high during the fourth quarter of 2016 — the highest it’s been since the recession.
Sloan said most Americans are comfortable with the current level of personal debt and will likely not cut back on spending anytime soon.
“Consumers have become fairly comfortable with the debt levels after the recession,” he said. “If anything people are willing to stretch themselves with more debt right now rather than less.”