Consumer Sentiment Supports the No-Recession Call

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Now that markets have hit new highs and now that longer-term interest rates have risen again, we are getting a first look at consumer sentiment for the month of November. The University of Michigan has released its index of consumer sentiment showing a reading of 95.7. The result was just above the 95.5 reading for October and compared with consensus estimates of 95.3 from the Wall Street Journal and a 96.0 consensus estimate from Econoday. The average level for 2019 on the main index has been 95.6.

Consumers remain more confident about the present than the future. The current conditions index of 110.9 was down from 113.2 last month, and the index of consumer expectations rose to 85.9 in November from 84.2 in October.

While this may not appear to be a stellar number, it’s also far from gloomy and is very supportive of the no recession call. It also may be continued support for the thesis that the Federal Reserve’s interest rate cycle already has ended. That said, this number will be revised in a broader refresh later this month.

According to the survey, consumers voiced a slightly more positive outlook for the economy but they also showed a slightly less favorable outlook for their own personal finances. The report did include a continued overhang of tariffs, trade wars and even the impeachment process. It said:

Spontaneous negative references to tariffs were still mentioned by one-in-four consumers in early November. References to the impact of impeachment on economic prospects were virtually non-existent, mentioned by less than 2% in October and November. The lack of impact on economic prospects is broadly similar to Clinton’s but not Nixon’s impeachment inquiry. The critical difference was that during Clinton’s impeachment, economic conditions remained very favorable; indeed consumer sentiment was at its most favorable levels ever recorded. In contrast, Nixon’s impeachment inquiry started at the same time as the oil embargo in October 1973, with oil prices quadrupling over the next six months. While consumers voiced a rapid collapse in optimism, many believed Nixon was too distracted to attend to their concerns about escalating inflation and unemployment, or that the economy would fall into recession in late 1973. The current performance of the economy, in contrast, is neither as bleak as Nixon’s nor as good as Clinton’s.

More evidence that the consumers are proving all those gloomy recession forecasts from the summer as wrong is based on jobs and spending, even if there was at least some degree of caution. The report said:

The strongest aspect of the current economy has been job and wage gains. Although consumers have become somewhat more cautious spenders, they see no reason to engage in the type of retrenchment that causes recessions. While most consumers do not anticipate year-to-year increases in the unemployment rate, the majority of consumers expect the unemployment rate to remain largely unchanged at its lowest level in 50 years.

Stocks continued to see some marginal profit-taking on Friday, after hitting all-time highs this week. The Dow Jones industrials were down 73 points at 27,601 and the S&P 500 was down just over seven points to 3,078.


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