The US consumer is still relatively strong

Macro

Christopher Dembik

Head of Macro Analysis

Summary:  Yes, the University of Michigan consumer confidence survey slightly undershot expectations. But the US consumer is still relatively strong.


The numbers

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.

 

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

Saxo Capital Markets HK Limited
Rooms 2001-02, 20/F York House
The Landmark
15 Queen's Road Central
Hong Kong

Hong Kong S.A.R

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract) and Type 3 Regulated Activity (Leveraged foreign exchange trading) licenses (CE No. AVD061). Registered address: Rooms 2001-02, 20/F York House, The Landmark, 15 Queen's Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.