(Bloomberg Business) — The Federal Reserve’s latest statement contained an unusual hint about their optimism for better economic growth this year.
“Consumer sentiment remains high,” the statement said, breaking from the usual drone about recent economic trends.
Sentiment — despite its impressive levels of late — is often too fickle an indicator for central bankers to put much stock in, and its correlation to spending isn’t perfect, so the context of the Fed’s reference is important. Real disposable incomes rose 6.2 percent in the first quarter, the most in more than two years. Yet so far, consumers are banking much of their cash.
Fed policy makers’ reference to upbeat sentiment suggests their view is that ”consumption is going to rebound,” said Michael Gapen, chief U.S. economist at Barclays Plc. Put another way, all these high animal spirits are going to pay out in the form of shopping sprees.
Here are three indicators to watch for the consumer comeback.
1. Personal spending
Personal consumption expenditures as measured by the Bureau of Economic Analysis has under-performed so far this year, causing some to question whether the windfall from lower prices at the pump was stashed away for good.
The saving rate, or the share of disposable income that the consumer socks away, stands at 5.3 percent as of March. While down from February’s 5.7 percent, which was the highest in more than two years, it was the third-best rate since the end of 2012.
The BEA’s figure on consumption provides a more complete picture of the purchases that make up about 70 percent of the economy, since it captures spending on services in addition to retail sales. After adjusting for inflation, which generates the figures used to calculate gross domestic product, household spending increased 0.3 percent in March after little change in the prior month. That brought the year-over-year rate down to 2.7 percent from readings of 3.4 percent and 3 percent in January and February, respectively.