US consumer sentiment not as bad as it seems

Macro 4 minutes to read

Christopher Dembik

Head of Macro Analysis

Summary:  Yes, the University of Michigan consumer confidence survey undershot expectations. But dig a little deeper and you'll find some surprising underlying strength.


The numbers

The preliminary data for the April University of Michigan consumer survey was released today. Consumer sentiment stands at 96.6 vs an expected 98.2 and prior 98.4. At first glance, this is a negative print, but it is still in its long-term range and we notice that current economic conditions are out better than in March, at 114.2 vs 113.3. Overall, considering we are at the final stage of a 10-year economic expansion, this is rather a positive report.  

The big picture

In our view, US consumer sentiment remains well-oriented, and close to the pre-crisis high, at least when it comes to the University of Michigan index. The spread between the University of Michigan Index and the Conference Board Index is still big as you can see in the chart below.

Historically, US recessions have been almost systematically preceded by an increase in the spread (except for the 1982 recession). This is something to monitor but, so far, we believe it is more the signal that we are at the end of the business cycle than that a new recession is about to start.

For the coming months, the broad picture for US consumer sentiment is expected to stay positive, as job market, wages and stock market continue to improve. 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 was at 3.8% in March), wages are still rising above 3% YoY – which is above the last 10-year average of 2.3% - and the under-employment rate (U-6) is at a low point, there is no threat of a prolonged decline in US consumer sentiment. 

Even the real estate market, which is more mixed, is supporting a positive trend when looking at housing affordability. Through rising a bit since 2016, housing mortgage payments as a percentage of income is quite close to historical low points, at 17% in January 2019 versus 23% during the previous cycle peak.

As a final note, the positive start of the earnings season should be a factor of higher confidence if the trend is confirmed next week by upcoming releases and should influence US consumer sentiment positively in April (that print is due on May 17).
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.