Soft patch in consumption only temporary

Last week’s weaker than expected data on retail sales and the drop in utilities production in February suggest that real consumption growth has started the year on a softer footing than initially believed. Nevertheless, the apparent weakness in consumption in recent months is hard to square with the fundamentals, other than perhaps the turmoil in financial markets earlier this year. But even there, the impact on consumer confidence was minimal and financial conditions have improved significantly since then. Meanwhile, employment gains have been healthy and real incomes have continued to grow at a decent clip. Accordingly, there are still plenty of reasons to believe that real consumption growth will rebound to around 3.0% annualised over the first half of the year.