Consumer spending slowed in April but remains “solid,” some falloff in consumer confidence at end of May. Tariffs take a toll.

New data show consumer spending slowed in April, but “stayed solid,” according to the Wall Street Journal. 

U.S. households spent at a slower but still solid pace in April, suggesting consumers can help extend an already decadelong expansion amid signs economic momentum is easing.

Personal-consumption expenditures, a measure of household spending on everything from carpet cleaning to computers, increased a seasonally adjusted 0.3% in April from March, the Commerce Department said Friday. That came on the heels of March’s boom, the best monthly increase since 2009.

The WSJ story also notes consumer confidence stayed solid.

Consumer sentiment also remained strong in May, according to a separate survey from the University of Michigan. The gauge eased slightly from earlier in the month, but remained near a two-decade high.

Yesterday we wrote about the Conference Board index of consumer confidence reaching its highest level since November. 

In another WSJ story, the University of Michigan consumer sentiment numbers are put into context. 

U.S. household sentiment rose starkly at the beginning of May to its highest level in a decade and a half, driven by a brighter economic outlook.

The University of Michigan on Friday said its consumer sentiment index was 102.4 in early May, up from 97.2 in April. Economists surveyed by The Wall Street Journal expected the confidence gauge to tick down to 97.0.

Late May, however, saw a downturn as the UM Surveys of Consumers chief economist Richard Curtin reports.

Although consumer sentiment remained at very favorable levels, confidence significantly eroded in the last two weeks of May. The late-month decline was due to unfavorable references to tariffs, spontaneously mentioned by 35% of all consumers in the last two weeks of May, up from 16% in the first half of May and 15% in April and equal to the peak recorded last July in response to the initial imposition of tariffs.

The WSJ continues,

The survey’s underlying gauge of future expectations increased to the highest level since 2004, driving most of the month’s overall sentiment rise. The headline number has now fully recovered from a drop earlier this year and last year, which was caused primarily by the U.S. government shutdown and financial-market volatility. In the medium term, the index has bounced around historically high levels for more than two years as employers continue to create jobs and wages rise at a faster pace.

“That consumers view prospects for the economy both near and long term at the highest levels since 2004 coincides with more economists pushing out forecasts for the start of the next recession from 2020 to 2021,” said Robert Frick, economist at Navy Federal Credit Union.

Though the relationship between consumers’ outlook and their spending has been weaker in recent years, the University of Michigan report suggests “that, after a sharp slowdown in the first quarter, consumption growth is rebounding in the second quarter” according to Michael Pearce, senior U.S. economist at Capital Economics.

Uncertainty continues to cloud forecasts, a major reason for our concern about the sustainability of the recently-adopted state budget. In reporting on the strong Q1 economic performance, the WSJ adds a note of caution.  

U.S. economic growth remained robust in the first quarter, although fresh government data showed less business investment, a decline in corporate profits and muted consumer spending.

The outlook for the rest of the year is clouded by the threat of a slowing global economy, trade tensions with China and weakening inflation.

Calculated Risk rounds up Q2 forecasts from several sources and concludes,

These early estimates suggest real GDP growth will be in the 1% to 2% range annualized in Q2.

Remember this. We’ll see soon enough.