Consumer spending chart shows cracks

Are U.S. consumers spent?

There’s a worrisome trend forming in the rate of real consumer spending, also known as PCE, or personal consumption expenditures, said Lakshman Achuthan, co-founder of the Economic Cycle Research Institute.

After a “cyclical upturn” in spending growth in 2016 and 2017 — and additional boosts from rebuilding after Hurricane Harvey and the Trump administration’s tax cuts going into effect — spending has gone into a sustained decline, which could be a “yellow flag” in terms of recessionary risk, Achuthan said Wednesday on CNBC’s “Trading Nation.”

“We’ve been tracking the overall economy slowing, jobs growth slowing, manufacturing slowing, and the hope has been that the consumer’s just going to bail everybody out,” he said, citing the chart below.

“Here we see that the … consumer spending slowdown is very much in line with the jobs growth slowdown and the overall slowdown,” Achuthan said.

Now, consumer spending growth is at roughly a 2½-year low excluding the sharp nosedive that occurred in December 2018, the economic forecaster said.

To make matters worse, soft data like corporate and consumer sentiment surveys have turned lower, and intentions to buy big-ticket items like furniture or appliances haven’t looked this bad since “the lead-up to past recessions,” he said.

For those who believe the U.S. consumer will successfully stave off an oncoming domestic slowdown, that could pose serious problems, Achuthan warned.

“Let me boil it down: a recession is not imminent. It’s not right here. But it is certainly on the table,” he said. “You can’t take it off the table. There’s a lot of data kind of edging in the wrong direction. And I’m just concerned about this super optimistic story that the consumer is going to bail us out even though manufacturing is really decelerating. See, when you’re in a growth rate cycle downturn and it’s decelerating, deteriorating, that’s when you have a yellow flag on recession risk. You have to take it seriously.”

That could put the Federal Reserve in a difficult position with consumer prices, which are tracked by the Labor Department’s consumer price index, or CPI, at their weakest levels since January. Thursday’s reading bolstered expectations for another rate cut this year.

“How much of this kind of egging consumers on with low rates can you do? It’s not like we haven’t been doing it,” Achuthan said. “We’ve been pulling a lot of demand forward. Maybe we can do it one more time, but rates are already pretty darn low. I must say that the bond market certainly seems to be — while it’s doing a lot of other things — pricing in some slowing in growth ahead.”