Payden & Rygel: US consumer confidence versus consumer spending
This week, the Conference Board's consumer confidence survey for March fell to its lowest since 2021. Following a string of weak survey-based indicators in recent weeks, the fall in consumer confidence inflamed fears that the U.S. consumer would pull back on spending. However, we'd caution against using survey-based or 'soft' data to forecast spending.
First, factors other than the ability to spend may be weighing on the consumer psyche, like political concerns. Second, the relationship between changes in consumer confidence and actual consumer spending is weak. Even when consumer confidence takes a hit, roughly 60% of the time we still observe a healthy pace of spending growth (>2% year-over-year).
The February Personal Income and Outlays report also out this week illustrates the case: real consumer spending is up 2.7% compared to a year ago despite a 10% drop in consumer confidence since the start of the year. As the adage goes, actions speak louder than words, so watch what the consumer does, not what the consumer says, when assessing recession risk.
