The US consumer is still relatively strong
Head of Macroeconomic Research
Summary: Yes, the University of Michigan consumer confidence survey slightly undershot expectations. But the US consumer is still relatively strong.
The preliminary data for the January University of Michigan consumer survey was released today. Consumer sentiment stands at 99.1 vs an expected 99.3 and prior 99.3. This is not really disappointing as it remains in its long-term range. In addition, inflation expectations are on the rise, at 2.5% vs prior 2.3%. It will be something that we will watch closely in the coming months.
The big picture
Overall, the US consumer sentiment remains broadly well-oriented mostly due to the continued improvements in the job market. Historically, the US labour market figures tend to have a very strong impact on consumer attitudes. As long as the unemployment rate is stable (U-3 is standing at 3.5%) and wages are still close to 3% YoY – the last print was at 2.9% which is above the last 10-year average of 2.3% - and the under-employment rate is at a low point, there is no threat of a prolonged decline in US consumer sentiment.
The households’ financial situation has also significantly improved over the past months, which has certainly played a major role in 2019. The debt ratio continues to move down at 96% of disposable income and the debt service ratio, which is probably more important to watch, is at a historic low at 9.6%.
For the coming months, we expect the positive start of the earning seasons should be a factor of higher consumer confidence if the trend is confirmed next week by upcoming releases. The hope for tax cut 2.0 could also be a positive driver in case the government decides to proceed before the presidential election.
The only (minor) risk we will continue to monitor closely this year is food inflation, which is rising fast in many Asian countries (notably China, India and Vietnam) and that could lead to inflationary pressures in the US if it is not contained.
In our view, the US consumer is still relatively strong. Personal consumption should remain for most of 2020 the key contributor of real USD GDP growth, along with government spending, as was the case in Q2 and Q3 2019.
Latest Market Insights
Quarterly Outlook Q3 2022: The Runaway Train
- Central banks' attempts to kill inflation is a paradigm shift, which could end in a deep recession.
Tangible assets and profitable growth are the winnersWith US equities officially in a bear market, the big question is where and when is the bottom in the current drawdown?
Understanding the lack of investment appetite among oil majorsThe everything rally seen in recent quarters has become more uneven, as its strength is driven by commodities in short supply.
The pressure is on as the wind leaves the sailsWith cryptocurrencies in sharp decline, are we entering a crypto winter or is the bear market a healthy clean-up of the crypto space?
Why the Fed can never catch up and what turns the US dollar lower?Many other central banks are set to eventually outpace the Fed in hiking rates, taking their real interest rates to levels higher than the Fed will achieve.
Bank of Japan: Swimming against the tideThe Japanese economy has gone from the age of deflation to rapidly rising prices in no time, leaving the Bank of Japan in a pickle.
Green transformation detour and bear market hibernationWith the impending risk of global econonomic derailment, we share the five things investors need to consider in this new half year.
Crisis redux for the eurozone?Whether there's going to be a recession in Europe or not, the path towards a stable economy will be agonizing.
Technical Outlook: Gold, Oil and a remarkable multi-decade perspective on EquitiesThe Nasdaq bubble pattern, USDJPY resistance, crude oil uptrend losing steam and the technical outlook for USD.
China: the train of new development paradigm left the station two years agoChina is transiting to a new development paradigm, as they are hit by deteriorating terms of trade, a slower global economy and an uncertain future while continuing attempts to contain the pandemic.