The weakness of real consumption growth, which appears to have slowed to only 1% annualised in the first quarter, suggests that the recent tax cuts have so far failed to provide any meaningful boost to activity. After many months of anticipation, there are now rising concerns that the Republicans’ tax bill isn’t all it was hyped up to be.
Before we throw in the towel on the tax cuts, however, the apparent lack of any boost to spending may simply be because most Americans have seen only a modest rise in their monthly take-home pay. Those tax savings will start to add up over the coming months and, with the labour market continuing to strengthen and consumer confidence buoyant, there is still a good chance that they will help drive stronger growth in consumer spending over the rest of this year.
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