U.S. Outlook: Will consumers resurface in the second quarter?

Scott Anderson
Posted by Scott Anderson
Chief Economist

Our forecast for a second quarter rebound in U.S. GDP growth to around 2.0% will largely depend on U.S. consumers returning to the stores and opening their wallets despite the worrying recession signals coming from the U.S. Treasury bond market.

The Treasury yield curve has moved deeper into inversion since last week’s FOMC meeting. And the Fed funds futures market has begun to price in not one, but two or more quarter‐point rate hikes before the end of 2020.

A recession probability model from the Cleveland Fed is flashing amber (32.7% probability) at the possibility of a downturn beginning about 12 months from now.

But despite all the hand wringing over the yield curve inversion, corporate credit spreads remain historically tight and show little concern for future credit losses. Moreover, the stock market is about ready to close out its best quarterly performance in 10 years. Year‐to‐date the S&P 500 is up 12.8%.

For more on this, see highlights of my report below, followed by a link to the full U.S. Outlook, delivered on March 29.

Key observations:

Here is why we are forecasting a consumer spending into the 2.3% annualized growth range in the second quarter:

  • Sub‐4.0% unemployment rates are finally leading to stronger real average hourly earnings growth.
  • Real average hourly earnings growth has accelerated rapidly in recent months, hitting 1.9% for the first time since 2015.
  • U.S. job opening are just below November’s record high levels and initial jobless claims are still near historical lows well into March.
  • The S&P 500 is now only 3.6% shy of its September 20 record high level.
  • Household net worth dropped in the fourth quarter from record high levels in the third quarter, but a strong stock market rebound in Q1 2019 is bound to bring household net worth back to record high levels again.

Read my full report.

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