Economic Update: Current Consumer Sentiment

The University of Michigan’s consumer sentiment index slid to 59.1 this month (preliminary reading). That is the lowest headline print since 2011 and a level rarely seen outside of a recession.

However, the U.S. economy at this moment is definitely not in a recession. In fact, by various measures consumer spending has actually grown faster than inflation this year even though inflation has outpaced wage growth. How is this possible? First off, confidence in the labor market remains a bright spot in recent sentiment surveys. For example, a 55.2 percent majority of Americans in the latest consumer confidence poll conducted by The Conference Board said that they believe jobs are “plentiful” currently, while just 10.6 percent feel jobs are “hard to get.” Moreover, 17.4 percent of respondents expect there to be even more jobs available in the months ahead, and 16.5 percent anticipate their income to increase.

Such optimism in the labor market begets confidence in future earnings power, in turn boosting one’s belief that they will be able to pay off debt. As a result consumers have been able to keep spending at an elevated rate thanks in part to a greater ability to utilize credit. Obviously an over-willingness to put purchases on one’s charge card can lead to problems down the road but historically it is not a reason for concern until we start to see delinquencies consistently rise. Encouragingly, bankruptcy filings are at a two-decade low, according to Equifax, and the total amount of credit Americans have available on their cards rose last quarter to $4.12 trillion, nearly 6 percent above the pre-pandemic level.

Further, the aggregate impact on consumer credit from rising rates is limited since the majority of consumer debt, including mortgages and auto loans, remains subject to fixed rates. Finally, recent stock market volatility appears to have also weighed on consumer sentiment of late, but according to a new J.P. Morgan note, “History suggests that periods of gloom may be among the best times to buy equities. Indeed, following 8 rather obvious troughs in consumer sentiment over the last 50 years, subsequent 12-month S&P 500 returns averaged almost 25%. Because of this, investors would be wise to keep their emotions in check, and invest based on the logic of current valuations and long-term prospects, rather than negative emotion in this difficult time.”

What To Watch This Week

Monday

  • Chicago Fed National Activity Index 8:30 AM ET
  • Raphael Bostic Speaks 12:00 PM ET

Tuesday

  • PMI Composite Flash 9:45 AM ET
  • New Home Sales 10:00 AM ET
  • Richmond Fed Manufacturing Index 10:00 AM ET
  • 2-Yr Note Auction 1:00 PM ET
  • Money Supply 1:00 PM ET

Wednesday

  • MBA Mortgage Applications 7:00 AM ET
  • Durable Goods Orders 8:30 AM ET
  • EIA Petroleum Status Report 10:30 AM ET
  • Survey of Business Uncertainty 11:00 AM ET
  • 2-Yr FRN Note Auction 11:30 AM ET
  • 5-Yr Note Auction 1:00 PM ET
  • FOMC Minutes 2:00 PM ET

Thursday

  • GDP 8:30 AM ET
  • Jobless Claims 8:30 AM ET
  • Pending Home Sales Index 10:00 AM ET
  • EIA Natural Gas Report 10:30 AM ET
  • Kansas City Fed Manufacturing Index 11:00 AM ET
  • 7-Yr Note Auction 1:00 PM ET
  • Fed Balance Sheet 4:30 PM ET

Friday

  • 2-Yr FRN Note Settlement
  • Personal Income and Outlays 8:30 AM ET
  • Consumer Sentiment 10:00 AM ET
  • Baker Hughes Rig Count 1:00 PM ET
  • SIFMA Early Close
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