http://www.nytimes.com/2014/03/29/business/economy/us-consumers-spent-more-in-february-but-showed-less-optimism.html?ref=economy&_r=0
After the impact of unusually bad weather, The Commerce Department said on Friday that consumer spending rose 0.3 percent last month, matching economists’ expectations. According to the article, the increase in consumer spending in February was due to an increase of demand for health care and utilities, which is services consumption.
However, the increase in consumer spending doesn't suggest the economy is good right now. A second report said that the consumer sentiment index dropped 80.0 in March from 81.6 in February. The survey director, Richard Curtin, said “Current conditions in the overall economy were reported by consumers to have recently weakened.”
Although the increase in consumer spending doesn't necessarily suggest the economy is doing well right now (as noted by the decrease in sentiment index), it is always a positive to see an increase in consumer spending. It is one step in the right direction. As the summer comes around, consumer spending will increase more and hopefully boost the economy. Another thing to consider is the fact that from February to March this year, weather actually seemed to get colder in throughout the country as opposed to warmer (like normal years). This could possibly explain why the consumer sentiment index dropped by 1.6.
ReplyDeleteWhat could also explain the drop in the consumer sentiment index, as compared to the rise in the consumer spending, is what the article states the increase was from. An increase in demand for health care could indicate that because of the extreme weather, consumers are sick, which could potentially impact how they are feeling. However, one might also have to consider that Obamacare enrollment just ended, and that could also explain the rise in demand for health care, though not necessarily the drop in consumer sentiment index.
ReplyDeleteNow that the weather is warming up and we are finally out of the polar vortex, there is no doubly that consumer spending is increasing. This may mean that disposable income of people is increasing and consumers are expecting a better economic prospect in coming months. I do agree with the above comments that an increase in consumer spending does not suggest that the economy is doing better. However, the rise is consumer spending is one step closer to stimulating economic growth in the US.
ReplyDeleteMaybe the consumer sentiment index is not the best indicator of consumer spending. If consumption is going up, is it possible that the concern stemming from the index is just more of the animal spirits phenomenon and people are just worrying for no reason?
ReplyDeleteIt is likely that there will soon be an increase in the consumer sentiment index, and at the very least, an increase in consumer spending soon. With summer coming up, there will likely be an increase in people going on vacation and traveling throughout the country. We can expect, as usual, an increase in consumer spending from this. Since the weather will also be nice, the consumer sentiment index may also increase, because people will feel better on most days. This usually happens around this season.
ReplyDeleteAlways interesting to see how non-economic factors affect the level of consumer confidence. Prolonged bad weather in particular can understandably be detrimental. While consumer confidence might go up, it is important, obviously, to keep an eye on factors other than weather.
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