The flush of this Spring’s economic activity is wearing off and the American consumer is being realistic about the economy’s prospects.
One indicator can be seen in the muting of the consumer outlook from BIGResearch in June. Sentiment about the chances for a strong economy were down from May and unchanged from a year ago.
Sentiment is up a long way from the dark summer of 2008, the mood of the last year has stayed relatively unchanged, despite renewed economic activity.
The embedded caution about the economy is reflected in how Americans describe their approach to spending. 74.1% of Americans say they are living a simpler life, according to BIGResearch. On balance, they are happy about this increased simplicity. For sure, they are redefining luxury: 84.1% say they aren’t ready to spend on luxury items. The way luxury gets defined is shifting also, as demonstrated in people’s responses.
This sentiment puts some of the recent economic reports in context. As summarized in the blog Calculated Risk’s weekly update, the momentum in retail sales is lagging and underlying economic activity is steadying after a rebound to refill inventories that had been allowed to diminish during the initial slump in consumer spending.
These observations were echoed last week in the release of the Federal Reserve Beige Book, which looked at economic activity through May
Economic activity continued to improve since the last report across all twelve Federal Reserve Districts, although many Districts described the pace of growth as “modest.” Consumer spending and tourism activity generally increased. Business spending also rose, on net, with employment and capital spending edging up but inventory investment slowing. By sector, nonfinancial services, manufacturing, and transportation continued to gradually improve. Residential real estate activity in many Districts was buoyed by the April deadline for the homebuyer tax credit. Commercial real estate remained weak, although some Districts reported an increase in leasing. Financial activity was little changed on balance, although a few Districts noted a modest increase in lending. Spring planting was generally ahead of the normal pace, while conditions in the natural resource sectors varied across the Districts. Prices of final goods and services were largely stable as higher input costs were not being passed along to customers and wage pressures continued to be minimal.
The signs suggest that consumer has recovered, but that the recovery is marked by a wide-eyes pragmatism about a weak economy with little momentum for growth.
- Experts Talk Beige Book, Bernanke Testimony (businessweek.com)
- Beige Book and Flow fo Funds Overview (fivethirtyeight.com)
- Economy improving modestly: Fed’s Beige Book (financialpost.com)
