Report: Consumption looks constrained in 2014

New York – Factors including the permanency of the 2013 payroll tax increase, uneven job creation and uncertainty caused by the autumn partial government shutdown are expected to continue constraining consumer spending in 2014. According to a new economic insight report from Sterne Agee, lower gas prices, a lingering wealth effect from home price appreciation and record highs in equities helped boost holiday spending, but will not be enough to counteract a trend toward weak consumption that has been in place since the beginning of this year.

Sterne Agee analysis shows consumer spending declined from 2.3% in first quarter 2013 to 1.8% in the second quarter, and gained just two-tenths to 2% by the third quarter. The majority of the weakness was centered around service consumption. Goods consumption increased near 3.5% throughout the year in part benefiting from a heightened appetite for autos as the average age of the nation’s light-vehicle population remains near a record high.

Going forward, further improvement in the household balance sheet, coupled with modest income growth, is expected to help advance or at minimum sustain consumption growth at a pace between 1.5%-1.75%. Higher interest rates will likely limit consumers’ ability to supplement income shortfalls with credit.