Consumer confidence may be beginning to show some cracks as recent surveys and monthly data confirm. Affecting about two-thirds of economy, the fog will clear following the release of fourth-quarter payments-related reports this month. The overall consumer confidence trend for 2019 has been downward, except for high income households ostensibly benefiting from a record setting stock market.
The Conference Board Consumer Confidence Index decreased marginally in December in what would have been five consecutive months of decline. However, there was a slight upward revision for November. The Index now stands at 126.5, down from a revised 126.8 in the prior month. The Expectations Index – based on consumers’ short-term outlook for income, business and labor market conditions – decreased from 100.3 last month to 97.4 this month. Consumers’ assessment of the job market was mixed. Those saying jobs are “plentiful” increased from 44.0% to 47.0%, however, those claiming jobs are “hard to get” also increased, from 12.4% to 13.1%.
Lynn Franco, Director of Economic Indicators at The Conference Board. says “while the economy hasn’t shown signs of further weakening, there is little to suggest that growth, and in particular consumer spending, will gain momentum in early 2020.”
High Income Households Most Optimistic
The University of Michigan Consumer Sentiment Index remained largely unchanged in late December at the same very favorable level recorded at mid-month. Most of the December gain was among upper income households, with those in the top third of the income distribution gaining 7.5% from last month and those in the bottom two-thirds posting a gain of just 0.8%. The recent shift favoring higher income households is in the opposite direction when compared with all-time peaks in the late 1990’s. The impeachment hearing had a barely noticeable impact on economic expectations, as it was mentioned by just 2% of all consumers in the December survey.
University of Michigan Surveys of Consumers chief economist, Richard Curtin, notes for the year-ahead, an annual inflation rate of 2.3% was expected, the lowest since 2.2% was recorded twice, in December 2016 and September 2010 prior to the Great Recession’s lows.
Floridians Unfazed But Trend Down
The University of Florida Consumer Attitude Survey found consumer sentiment among Floridians increased in December by seven-tenths of a point to 100.1 from November’s revised figure of 99.4. Among the five components that make up the index, three increased and two decreased.
Florida began 2019 with high levels of consumer confidence. April 2019 reported the highest level in the last 17 years, contributing to an average of 98.9 in the first half of the year. Consumer sentiment dropped significantly in August due to the ongoing trade war with China, and the average consumer sentiment fell to 97.6 in the second half of 2019.
“Notably, the average consumer sentiment in 2019 is one-tenth of a point lower than last year’s average. Despite this slight decline in 2019, overall, consumer sentiment among Floridians remains high,” said Hector H. Sandoval, director of the Economic Analysis Program at UF’s Bureau of Economic and Business Research.
McKinley Recession Call Too Early
Senior Analyst Robert McKinley apologizes for concluding the recession started in July 2019 in the face of the concerning factors including a brief, but massive overnight funding market shortage (first time in more than a decade), inverted yield curve (first time in 13 years), trade tariff/consumer taxes set to raise consumer consumption costs by nearly $100 per month in the second half of 2019 (beyond memory), an irrationally exuberant bull stock market (after longest running recovery ever), erratic consumer debt behavior, negative trends in payments, and deteriorating consumer confidence.
“I’m not an economist and have never claimed to be one, but as a seasoned investor, business owner and observer/analyst of the payments industry for more than three decades, I could see the writing on the wall,” he says.
McKinley believes the toning down of the trade war trash talk and the politically-pressured short-term interest rate cuts may have been stalling factors, putting U.S. consumers in a better mood for the holiday spending period. However, he remains pessimistic for 2020, despite the volatile political atmosphere.