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Will an Uptick in Consumer Confidence Stimulate Spending?

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Recently released economic data sheds some interesting light on the state of the U.S. consumer.

Disposable income turned in another month of stable growth in February, according to just-released data from the U.S. Department of Commerce data. After-tax income rose by 3.7% for the fourth straight month in February on a 12-month smoothed basis. Despite a slight dip from the peak of the more than 4 percent growth that occurred between late 2014 and the first few months of 2015, it’s well above the low points we saw for most of 2013 and the first few months of 2014.

However, consumer spending, the all-important measure that is essential to economic stability, rose by only 3.5% in the month. Spending growth reached a 12-month high last November, but has since stabilized at a slightly lower level as shifts in consumer values have put a damper on consumption, and low inflation and the promotional retail environment have allowed shoppers to spend less on the same amount of stuff.

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Consumers opted to save more of their income in February. The savings rate, or percent of disposable income not spent, increased to 5.4% in February, its third straight month of accelerating increase.

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Consumers might be feeling less need to put something away for a rainy day, though. According to data released this morning by The Conference Board, consumer confidence rose by 2 points in the past month, and now stands at 96.2. Although the Present Situation Index declined slightly, the Expectations Index rose, helped in part by the rally in financial markets and improved short-term expectations around business conditions as well as the labor market. Whether this improvement in confidence stimulates spending remains to be seen, however. 

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