Consumers Continue to Spend Despite Rising Tariffs
For Wall Street, analyzing the confidence and optimism of the American consumer can be a daunting task. It can be akin to finding the proverbial needle in a towering haystack. Unlike hard metrics like unemployment, economic growth or inflation, Wall Street analysts and number crunchers are expected to somehow quantify a “feeling.”
As you’ve often heard me opine, confident and optimistic consumers tend to spend their money more freely. Ideally, that optimism on jobs, income and the economy fuel the consumer spending that drives our economy forward. Here in the U.S., consumer spending accounts for roughly 70% of our nation’s entire economic growth.
But consumers can be fickle creatures. When consumer confidence is high, their spending can unexpectedly dip into hibernation. Likewise, when confidence is low, consumers may continue spending their money at a highly robust pace. It’s part of the many challenges Wall Street faces when trying to predict the spending habits of the American consumer.
The Consumer Confidence Index (CCI) has a benchmark of 100. Any level above 100 indicates American consumers are confident and optimistic. Below 100 conveys pessimism. In March, the CCI was reported at just 92.9, down from February’s level of 100.1. This 7.2 decline was the largest monthly drop since August 2021. It’s also the lowest level for the CCI in four years.
It’s easy to understand the massive drop in consumer confidence. Since President Trump took office in late January, his agenda of global trade disputes have caused a heightened sense of uncertainty among both consumers and businesses. But given the sharp decline in consumer confidence, historically, one would expect a corresponding drop in consumer spending. However, recent date shows that consumers have yet to temper their spending habits.
In March, according to data from the U.S. Census Bureau, retail sales surged by 1.4%. This was the largest monthly increase in retail sales in more than two years. Over the past 12 months, retail sales have risen by a hefty 4.6%. March’s surge was led by a 5.3% increase in sales of autos and auto parts and a 3.3% jump in sales from building materials.
We’re only in the first few months of these trade disputes but the data is proving to be quite interesting. So far, and that’s a big qualifier, consumers still appear ready and willing to open up their pocketbooks at the checkout counter. But retail sales tend to be a very volatile number from one month to the next. Before Wall Street passes its judgement on the state of consumer spending, it wants to see a bigger pool of data in the upcoming months to help paint a broader impact these trade disputes are having on the American consumer.
Mark M. Grywacheski, Investment Advisor
Quad Cities Investment Group is a Registered Investment Adviser.
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