Friday, June 29, 2018

Consumers Still Feeling Good, For Now

While the title to the following article on the June results of The University of Michigan's monthly consumer sentiment survey (an input to our macro model) may sound concerning, 98.2 is still a strongly positive reading.

There is a looming issue, however, that we've fully expected to begin rearing its ugly head in both the consumer and business surveys (and it is!); it's clearly showing up in expectations. The survey director's commentary in the last paragraph perfectly echoes our concern:

U.S. Consumer Sentiment Weaker Than Forecast on Tariff Concerns
By Reade Pickert(Bloomberg) -- Consumer sentiment weakened in the latter part of June on concerns about the economic impact of a trade war, according to a University of Michigan survey on Friday that also showed a pickup in inflation expectations. Highlights of Michigan Sentiment (June, final)
  • Sentiment index was little changed at 98.2 (est. 99) after 98 in the prior month; preliminary reading was 99.3 
  • Expectations measure decreased to a five-month low of 86.3 from May’s 89.1 
  • Current conditions gauge, which measures Americans’ perceptions of their finances, advanced to 116.5, from 111.8 in May 
  • Year-ahead inflation expectations rose to 3%, the highest level since March 2015, from 2.8% percent the prior month; preliminary figure was 2.9%
Key Takeaways
While sentiment remains high by historical standards, with survey respondents still upbeat about the job market and incomes, there's uncertainty surrounding U.S. tariffs on certain foreign imports and the threat of more.
The survey showed that American households are worried about the future effect of trade tensions on prices and the pace of economic growth in general. 
The potential impact of tariffs on the economy was spontaneously cited by one-in-four consumers, with most anticipating a negative effect. The increase in inflation expectations was due both to rising energy costs and the impact of tariffs on goods, according to the survey. The longer-term outlook for prices was more subdued.
Nonetheless, Americans anticipated an annual gain of 2.5 percent in their incomes, up from 1.6 percent in May and the highest since 2008, according to the University of Michigan. 
Officials Views 
“While tariffs may have a direct impact on only a very small portion of overall GDP, the negative impact could quickly generalize and produce a widespread decline in consumer confidence and optimism,” Richard Curtin, director of the University of Michigan consumer survey, said in a statement.
“The June survey offers a glimpse into the potential reactions of consumers to rising tariffs and suggests that the timing and size of the loss in confidence could be quick and substantial,” he said.

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