Lockhart Says Weak Consumer Spending Clouds U.S. Outlook

Federal Reserve Bank of Atlanta President Dennis Lockhart said that while first-quarter weakness is probably transitory, he is concerned tepid U.S. consumer spending could hinder a resumption of more robust growth this quarter.

“Consumers seem to be behaving cautiously in most categories of spending,” Lockhart said in Baton Rouge, Louisiana. “Recent consumer behavior is something of a puzzle,” and “the outlook I’ve laid out depends heavily on the health of consumer spending.”

The Fed last month repeated it plans to raise interest rates when it sees further labor-market improvement and is “reasonably confident” inflation will rise back to its 2 percent goal over time.

Answering a question from the audience, Lockhart said he’d rather be too late with a rate increase than run the risk of of tightening too early, which “could snuff out momentum.”

“I am more prepared to take the risks of waiting than the risks of being too early, particularly in light of what we saw in the first quarter,” he said.

The benchmark federal funds rate has been kept near zero since December 2008 as the Federal Open Market Committee battled the worst recession since the Great Depression and then sought to keep the expansion going.

“Early estimates of the current quarter’s rate of growth are disappointing,” Lockhart said to the Baton Rouge Rotary Club. “I’m not overly concerned, however” because it’s too early to read too much into the data, he said.

“The underlying fundamentals are strong enough to propel the economy along a growth path that delivers a bounce-back in the second quarter followed by a resumption of a pace of growth between 2.5 and 3 percent,” he said.

Harsh Winter

A rash of bad economic news so far this year was capped by a Commerce Department report that U.S. gross domestic product rose at a 0.2 percent annualized pace in the first three months of 2015. Economists blamed part of the poor performance on harsh winter weather and delays at West Coast ports due to a since-ended labor dispute.

Still, second-quarter growth was tracking at just 0.8 percent on May 1, according to the Atlanta Fed’s estimate. Private estimates have been above 2 percent.

In addition, a decline in oil prices has hurt investment and a strong U.S. dollar has hindered exports, Lockhart said.

The Atlanta Fed leader said first-quarter weakness has been common in the past five years. “Since 2010, the first quarter has averaged 0.6 percent annualized growth while growth over the remainder of the year has averaged closer to 3 percent,” he said.

A former Georgetown University professor, Lockhart has led the Atlanta Fed since 2007. The Atlanta Fed district includes Alabama, Florida, Georgia, and portions of Louisiana, Mississippi and Tennessee.

Before it's here, it's on the Bloomberg Terminal.