Consumer Confidence Defies Pessimism

U.S. consumers are feeling especially empowered these days, despite growing pessimism about the economic outlook.

As shown in the LPL Chart of the Day, Consumer Confidence Pushes Through Trade Uncertainty, the Conference Board’s Consumer Confidence Index fell to 135.1 in August. Still, that’s the fifth-highest reading of the economic cycle, an impressive feat given trade tensions and other global headwinds.

August’s strong consumer confidence reading was driven by a 19-year high in consumers’ views of present economic conditions. That’s no surprise to us, as steady gains in wages and jobs typically support consumer spending. Fiscal stimulus implemented in 2018 provided an extra boost of income through lower tax rates and added tax credits, and lower oil prices have allowed consumers to allot more income to discretionary spending.

“Consumer spending has been one of the most encouraging trends in the economy lately, thanks to a solid U.S. labor market,” said LPL Financial Chief Investment Strategist John Lynch. “It’s difficult to see a near-term economic downturn with such a strong undercurrent from the U.S. consumer.”

A U.S. economy carried by the consumer isn’t a bad situation to be in. After all, consumer spending accounts for about 70% of gross domestic product, so healthy consumer activity could carry the expansion on its own.

However, U.S. businesses need to transition into leadership at this point in the cycle. As we mentioned in Tuesday’s blog, capital expenditures (capex) need to rebound as the cycle matures to help sustain the expansion. Unfortunately, trade uncertainty has increasingly weighed on corporate sentiment, so a resurgence in capex may not be possible without a U.S.-China trade resolution.

IMPORTANT DISCLOSURES

Please see the Midyear Outlook 2019: FUNDAMENTAL: How to Focus on What Really Matters in the Markets for additional description and disclosure.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.

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Purchasing Managers Indexes are economic indicators derived from monthly surveys of private sector companies, and are intended to show the economic health of the manufacturing sector. A PMI of more than 50 indicates expansion in the manufacturing sector, a reading below 50 indicates contraction, and a reading of 50 indicates no change. The two principal producers of PMIs are Markit Group, which conducts PMIs for over 30 countries worldwide, and the Institute for Supply Management (ISM), which conducts PMIs for the US.