First Quarter Ends with Mostly Upbeat Economic Data

By Robert Hughes

The last day of the first quarter of 2017 saw mostly positive economic data. First, the University of Michigan released the final estimates on consumer sentiment for March. The Index of Consumer Sentiment edged up to 96.9 from 96.3.  The increase was entirely due to a rise in the Current Economic Conditions portion which rose to 113.2 from 111.5. The Index of Consumer Expectations, one of the AIER Leaders, held steady at 86.5. While the indicator was flat over the most recent month, the trend continues to be upward. The expectation portion is at a relatively high level historically but much more reserved compared to the consumer expectations index from The Conference Board.  That measure has surged in recent months and is near all-times highs.

Comments from the Michigan survey’s chief economist indicate the primary drivers of the rise in consumer sentiment are rising income and wealth, favorable job prospects, and low inflation expectation. However, sentiment is sharply divided along partisan lines with Republicans much more optimistic and Democrats quite pessimistic. He also notes that the partisanship is likely to fade, consumers seem to be judging the future against lowered expectations, and that despite an optimistic outlook, uncertainty is also quite high.

The Institute for Supply Management-Chicago released its survey of Chicago-area businesses.  The MNI Chicago Business Barometer rose to 57.7 in March from 57.4 in February and 50.3 in January.  Fifty is neutral for this data. A reading of 57.7 suggests a robust level of business activity in the Chicago area. More complete survey data from the national ISM will be released on Monday for the manufacturing sector and on Wednesday for nonmanufacturing.

Finally, the U.S. Department of Commerce released information on personal income and spending for February. Personal income rose 0.4 percent in February following a 0.5 percent rise in January. That gain reflects ongoing increases in wages and salaries as hourly wages rise and the economy adds more workers. After-tax incomes rose 0.3 percent for the month.

Personal consumption expenditures rose just 0.1 percent in February and after adjusting for price changes, real spending fell 0.1 percent. However, a significant portion of the decline was due to a drop in utility spending as a result of warmer-than-average temperatures. Spending less on utilities will make total spending look weaker in the current period but can actually be a positive for household budgets and future spending.

Overall, the economy appears to have good momentum though some estimates for first quarter real gross domestic product are disappointing. Still, with strong underlying fundamentals supporting future consumer spending, relatively high levels of confidence for consumers and businesses, and still-low interest rates, the economic expansion is likely to continue over the next few quarters.

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Robert Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.