JPMORGAN: The 'Slowdown In Consumer Spending Has Arrived'

Last week's release of personal spending data revealed that spending rose 0.2 percent in February, at the same pace as in January.

When adjusted for inflation, though, the data are less encouraging.

In a note to clients, JPMorgan economist Robert Mellman declares that the "consumer spending slowdown is here," saying consumers are beginning to feel the effects of the payroll tax cut expiry and rising gas prices.

Mellman writes:

Slowdown in consumer spending has arrived: The first-round effects of the tax increases should mainly affect consumer spending, and the forecast looks for real consumer spending to slow to only 1.0% growth at a seasonally adjusted monthly rate this quarter. This forecast appears to be tracking. Real consumer rose only 0.1% at a seasonally adjusted annualized rate in January following a downward-revised 0.1% increase in December as well.

Moreover, the tentative forecast looks for real consumer spending to decline 0.3% in March. Nominal consumer spending does not appear to have cracked in February. At least this is the message from unit auto sales, which rose to a 15.4 million pace. But real spending in February will be depressed by a high inflation reading. The PCE price index for February appears to have increased 0.5% (and the CPI 0.7%), reflecting the increase in the price of gasoline.

The chart below provides a nice visual summary of what Mellman sees happening right now:

On the other hand, Mellman points out that other economic indicators, like business investment, housing, and manufacturing, are all looking pretty good.

Consumer spending – not so much.