Macro: Sandcastle economics
Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.
You can access all of our platforms from a single Saxo account.
US consumer sentiment not as bad as it seems
Christopher Dembik
Head of Macroeconomic Research
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).
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).
Latest Market Insights
Quarterly Outlook 2024 Q3
Sandcastle economics
-
-
Bonds: What to do until inflation stabilises
Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.
-
Equities: Are we blowing bubbles again
Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.
-
FX: Risk-on currencies to surge against havens
Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.
-
Commodities: Energy and grains in focus as metals pause
Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.