U.S. consumer confidence has been going sideways over the past two years. A February bounce, following the end of the Trump government shutdown, was short-lived as consumer confidence resumed its slow downward erosion in March.
An upside down, or inverted, yield curve happens when short-term interest rates become higher than long-term rates. Investors consider this a major indicator of an impending recession. Historically, the lag time between an inverted yield curve and a recession is a little more than one year.
Bottom Line: When Main Street and Wall Street merge it means economic storm clouds lie ahead. Throw into the mix the uncertainty, created by politics, over health insurance and entitlements, and for investors the uncertainty with interest rates, tariffs and corporate earnings, and potentially it could get real ugly by next summer.
Meanwhile, the Conference Board Consumer Confidence Index declined in March to 124.1, compared 131.4 in February. The Present Situation Index (consumers’ assessment of current business and labor market conditions) declined, from 172.8 to 160.6. The Expectations Index (based on consumers’ short-term outlook for income, business and labor market conditions) – decreased from 103.8 last month to 99.8 this month.
The Conference Board also found the percentage of consumers stating business conditions are “good” decreased from 40.6% to 33.4&, while those saying business conditions are “bad” increased from 11.1% to 13.6%.
The percentage of consumers expecting business conditions will improve over the next six months declined from 19.6%to 17.7%, while those expecting business conditions will worsen remained relatively flat, 9.3% versus 9.2% last month.
The Conference Board concludes the overall trend in confidence has been softening since last summer, pointing to a moderation in economic growth.
The University of Michigan Survey of Consumers reports consumer sentiment rose 4.3% in early March, compared to February, but down 3.6% from one-year ago. Consumer view of current economic conditions rose 2.5% in March, compared to the prior month, and down 8.3% from one-year ago. Consumer expectations increased 5.7% in March from February and is up 0.5% from last March.
Small Business Outlook
The NFIB Small Business Optimism Index improved modestly in February, increasing 0.5 points to 101.7.
The NFIB concurs earnings trends weakened, as a million laid off workers and others affected by the shutdown cut back on spending. The loss of sales falls right to the bottom line. Worker compensation and selling prices were lower in February than they were in January, but job openings rebounded remaining at historically high levels. The Uncertainty Index fell 1 point to 85, a small decline but still showing a lot of residual uncertainty from the government shutdown.