US: Not quite so exuberant…

The Conference Board measure of consumer confidence has reported a sharper-than-expected fall in September with the index coming in at 125.1 versus 134.2 in August. This was weaker than the 133.0 consensus figure and suggests that the recent bout of equity market weakness may have generated a sense of nervousness about the economy. This has perhaps been compounded by the ten cent jump in the cost of a gallon of gasoline in response to Middle-East tensions.

The expectations component saw most of the damage, which is a little concerning. It posted its lowest reading since January when the US was in the midst of the last government shutdown. That said, the relationship between confidence and spending hasn’t been fantastic since President Trump won the 2016 election. Explaining this breakdown in the relationship is tricky. Indeed, we see less of a divergence between sentiment and spending when looking at the University of Michigan sentiment index.

There are still reasons to be positive on the US consumer spending outlook. Unemployment is at multi-decade lows while today’s Conference Board report showed more than 40% of respondents feel that there are plenty of jobs available. This gives a sense that there are opportunities for career progression or higher pay both inside and outside of your current employer. Pay rates are certainly accelerating while equities have recovered all their losses seen in August and mortgage rates have fallen by more than 100bp over the past year. This doesn’t point to an imminent downturn in spending.