Little New From The Fed's Minutes
But "Expect The Unexpected"
There was nothing significant in the Federal Open Market Committee (FOMC) minutes released yesterday other than a re-affirmation of expectations of better US economic growth in the coming quarters:
- Most participants expected that, following the slowdown in the first quarter, real economic activity would resume expansion at a moderate pace.
- While participants continued to see potential downside risks resulting from foreign economic and financial developments, most still viewed the risks to the outlook for economic growth and the labor market as nearly balanced.
- Participants generally agreed that data on private spending for the first quarter had been disappointing, with unexpectedly weak household expenditures and investment spending. Retail sales had continued to be tepid, although consumer sentiment stayed high and auto sales rebounded in March.
- Participants also pointed to other reasons for anticipating that the weakness seen in the first quarter would not endure. A number of the fundamental factors that drive consumer spending remained favorable, among them low interest rates, high consumer confidence, and rising household real income.
- A number of participants suggested that the damping effects of the earlier appreciation of the dollar on net exports or of the earlier decline in oil prices on firms’ investment spending might be larger and longer-lasting than previously anticipated.
- In addition, the expected boost to household spending from lower energy prices had apparently so far not materialized, highlighting the possibility of less underlying momentum in consumer expenditures than participants had previously judged. Some participants expressed particular concern about this prospect, as their expectations of a moderate expansion of economic activity in the medium term, combined with further improvements in labor market conditions, rested largely on a scenario in which consumer spending grows robustly despite softness in other components of aggregate demand.
(more here)
My Take:
- There are some concerns about the consumer (who represents close to 70% of the US economy).
- Last week I posed a theory that suggested that demographic issues may be responsible for this change in the consumer.
- Aging Baby Boomers are not spending (like they used to) as they save for (or enter) retirement.
- Frugal Millenials (now the largest cohort in the population) have generally different lifestyle and consumption habits (than did their folks, the Baby Boomers).
- It may be a combination of the winter slowdown and demographics or maybe it is as the Fed claims: just "transitory".
- Nonetheless, attention must be paid!
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