Consumer confidence cooled this month, according to updated data from the University of Michigan. Specifically, the headline sentiment gauge fell to 92.1 in the first-half of August, much worse than anticipated and the weakest reading since the start of the year. Surveyed Americans’ views of both current and future economic conditions deteriorated this month, but overall optimism remains near the high-end of the range for this business cycle. Further, yesterday’s encouraging retail sales data and a solid earnings report from Walmart earlier this week suggest that Americans are still more than willing to continue spending. A prolonged decline in sentiment, though, could start to weigh on consumption, and right now there are two key issues that Americans are worried about.
First, the Fed’s latest decision to cut interest rates for the first time in a decade gave consumers “apprehensions about a possible recession,” according to the survey, and caused some respondents to conclude that “they may need to reduce spending in anticipation.” This highlights the growing risk of “talking ourselves into a recession.” The other issue that Americans are paying attention to is the ongoing trade war, especially with the stock market violently reacting to every incoming headline on the trade dispute. Fortunately, officials in D.C. appear aware of this and announced earlier this week that about 60 percent of the new tariffs on imported Chinese goods set to go into effect on September 1 will now be delayed until December 15. This move could help lessen how much trade tensions weigh on consumer confidence (and household spending), at least in the near-term, and also give exposed retailers a better ability to prepare their inventories ahead of the holiday shopping season. Moreover, the delay further limits the immediate threat of the new round of tariffs to raise inflation, as well as provide more time for a breakthrough in negotiations to occur.
Sources: Econoday, UoM, ZH, Wells Fargo, FRBSL
Post author: Charles Couch