Outlook for consumption growth bright

The rise in real consumption in April, following an upwardly revised gain in March means that a sharp increase in consumption growth in the second quarter is now largely baked in the cake. Following the muted 0.6% annualised expansion in the first quarter, we expect consumption growth to rebound to 3% in the second quarter. Admittedly, the continued weakness of auto sales will be a drag on consumption, and it’s now possible that Congress will fail to pass any meaningful tax cuts, which may dent consumer confidence in the months ahead. But consumption growth should still be supported by the continued strength of the labour market, which is feeding through to decent gains in real disposable incomes.