Ian Shepherdson Pending Quotations

We fully expect sentiment to drop sharply, putting in place the conditions for much softer consumer spending numbers.

The data suggest real consumers' spending rose marginally last month -- but we still expect only a 1.5 percent annualized increase in the fourth quarter,

At this level the index is consistent with spending growth of about 3.5 percent, in line with recent economic data. But watch out for a dip next month in the wake of the renewed spike in gas prices. Overall, though, quite robust.

Nominal spending was held down by a 0.4% energy-induced plunge in the PCE deflator, so real spending rose a hefty 0.7%. A rebound in auto sales after the awful October was largely responsible for this.

If real spending rises at this pace in February and March, consumer spending will rise just 2.3 percent for the quarter, the softest since Q2 1997,

It is just too soon to be sure that the second-quarter slowdown will be sustained, ... The level of consumer confidence is still consistent with 5 percent spending growth.

With unemployment set to breach 6 percent over the next few months, people's view of the current economy is bound to deteriorate, ... But expectations are what matter for spending, and at this level the numbers suggest consumers spending will rise, albeit not rapidly.

Expectations are a leading indicator and are consistent with modest spending gains. Stronger stocks will push the index up further, and soon. This is a good report.