The most recent GDP numbers report a meager 0.3% increase in consumer spending for the first quarter of 2017 – the smallest amount since 2009. But economists are counting this as good news.
While it may seem contrary, a closer look at what consumers spent less money on tells the real story. For example, they spent less on things like gasoline, winter heating bills, and out-of-season clothing- all things consumers would prefer to spend less money on in the grand scheme of things.
It’s true that the scant jump in GDP is far below the 3.5% increase reported at the end of 2016 and leaves the increase in growth at a low 0.7%. However, a close look at the details reveals that the drops in spending are in the “right” places.
Americans cut spending on gasoline by $6 billion in the first three months of this year, which is a result of lower prices at the pump – a good thing for U.S. citizens.
An atypical warm weather trend allowed households to use less fuel to heat their homes. February was unusually the second hottest on U.S. record. The result was lowered spending on “housing and utilities”, with a drop of almost $12 billion.
The warmer weather also made it difficult for retailers to sell their remaining inventory of cool-weather items. Purchases of clothing and footwear fell by close to $5 billion.
The biggest plunge occurred in auto sales and parts, which they dropped nearly $20 billion in the first quarter of the year. Logically, though, following a lengthy boom that pushed sales to a record high in 2016, a resulting temporary slowdown in purchases of new cars and trucks is to be expected. The automobile industry was due for a slowdown. At the same time, demand remains strong and auto industry companies continue to increase production, anticipating a bounce-back.
Lower spending on these categories of goods and services spurred most of the decline in consumer expenditures for early 2017; that’s largely why GDP looked so poorly.
Economists were largely dismissive of the headline GDP number, fully recognizing that automobile sales are still near record high levels. Americans will need to buy more clothes for the spring. Air-conditioning bills are soon going to rise with the warmer months ahead. Oil prices have stabilized in advance of the summer driving season, a time when the cost of gas usually creeps upward.
The conclusion: consumer spending is almost certain to snap back. Consumer confidence recently hit a 16-year high, the unemployment rate is extremely low (4.5%) and worker compensation is rising at the fastest pace in a decade. Economists agree that spring is set to show faster U.S. growth, with forecasts running near 3% in the next quarter of 2017.