The latest retail sales data have dented the earlier optimism about consumer spending, undermining confidence in the consumer’s ability to keep the economy afloat. In fact, if the support from the consumer were to slacken further, the Fed will need to amend its latest statement that economic activity has been supported by “household spending … increasing at a moderate pace,” and find it increasingly hard to justify further rate hikes. As we noted in February, “it should be evident that the case for a full-blown Fed rate hike cycle cannot reasonably rest on the presumption of robust consumer spending.”

Furthermore, following a cyclical downturn in ECRI’s U.S. Leading Index of Consumer Spending (USLICS), designed to anticipate cyclical turning points in year-over-year (yoy) real personal consumption expenditures (PCE) growth, PCE growth entered a cyclical downturn (Chart). With yoy real PCE growth ticking up in January but staying well below its early 2015 high, the question is whether this marks the beginning of a new cyclical upswing or merely a blip in an ongoing cyclical downswing. Here the updated USLICS already provides crucial insights.