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Source: Macrobond. (T) Shaded areas represent NBER-dated recessions. Y-axis shown as basis points difference between present situation consumer confidence and future expectations consumer confidence. (R) ‘Total’ series represents a combination of the two major subindices.

The outlook for the consumer remains positive as consumer spending is expected to mirror the overall economy, with activity slowing from particularly robust levels in 2018. The unemployment rate hovers near multidecade lows and hiring remains robust. Wage growth is finally showing signs of drifting higher. The household savings rate is relatively high at 6.7%, and the household balance sheet maintains a healthier level of leverage when compared with prior expansions, including years of steady wealth gains.

The consumer remains the single largest sector of our economy, however, and it is important to not become complacent. At its core, our economy is hundreds of millions of individuals who choose to spend now or delay purchases and are constantly assessing conditions. Together they make up 69% of aggregate demand. Over the past 70 years, every time consumer spending has contracted, our economy has had a recession.1

We are keeping a close eye on consumer confidence as a timely coincident indicator of not just consumer spending, but the entire economy. Consumer confidence dipped from 20-year highs in December when the government shutdown began. The recovery bounce has been cautious and uneven, as the two major measures of confidence zigged and zagged in different months in Q1. We expect consumer confidence to stabilize at a more moderate level off recent highs, consistent with spending that is less euphoric than 2018.

One of our favorite indicators of broad economic health is a simple spread of the present situation index versus the expectations component. A sharp deterioration in this measure has coincided with the start of prior economic downturns. Given that this indicator currently hovers near cycle highs, we will be keeping close tabs on this differential in the coming weeks.

Read the analysis for each indicator:

Growth downshifts from sprint to sustainable

Consumer confidence
Housing market
Business investment

A perfect storm of policy uncertainty

Policy uncertainty

Smooth sailing for high yield, headwinds for equities

Equities
Fixed income

1 Out of the last 280 quarters, there were three quarters where personal consumption fell by 0.1% and the economy did not enter a recession.


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