Photo: Screenshot via Bloomberg TV
The latest note from BofA/ML economist Michelle Meyer hints at the sense of enthusiasm and animal spirits that people are feeling in the U.S. economy.The title is: “The bottomless pocketbook.”
It refers to this morning’s strong retail sales report, which has led Meyer to up her GDP forecast to 2.6 per cent from 2.2 per cent:
Retail sales jumped 1.1% in February, while “core control” (ex-autos, building materials and gasoline) increased 0.4%. This shows resiliency on the part of the US consumer, given the headwinds in February, including higher taxes, delayed tax refunds, rising gasoline prices and poor weather conditions. The tailwinds, including stronger job growth and wealth appreciation, are seemingly stronger than we had believed. While we continue to look for softening in coming months from the lagged impact of fiscal cuts, we must acknowledge better momentum from the consumer. We are now tracking 2.6% for Q1 GDP, up from our prior tracking forecast of 2.2%.
We can learn two lessons from this data: 1) consumers have greater support through labour income and wealth appreciation, which has also led to greater confidence, and 2) consumers may be willing to accept a lower saving rate for a period of time. The saving rate collapsed to 2.4% in January, the lowest level since prior to the crisis, and after today’s retail sales report, it appears consumers did little to build back savings in February.
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