Consumer Confidence Defies Pessimism

Posted by

Economic Blog 
August 28, 2019

U.S. consumers are feeling especially empowered these days, despite growing pessimism about the economic outlook.

As shown in the LPL Chart of the Day, Consumer Confidence Pushes Through Trade Uncertainty, the Conference Board’s Consumer Confidence Index fell to 135.1 in August. Still, that’s the fifth-highest reading of the economic cycle, an impressive feat given trade tensions and other global headwinds.

 

August’s strong consumer confidence reading was driven by a 19-year high in consumers’ views of present economic conditions. That’s no surprise to us, as steady gains in wages and jobs typically support consumer spending. Fiscal stimulus implemented in 2018 provided an extra boost of income through lower tax rates and added tax credits, and lower oil prices have allowed consumers to allot more income to discretionary spending.

“Consumer spending has been one of the most encouraging trends in the economy lately, thanks to a solid U.S. labor market,” said LPL Financial Chief Investment Strategist John Lynch. “It’s difficult to see a near-term economic downturn with such a strong undercurrent from the U.S. consumer.”

A U.S. economy carried by the consumer isn’t a bad situation to be in. After all, consumer spending accounts for about 70% of gross domestic product, so healthy consumer activity could carry the expansion on its own.

However, U.S. businesses need to transition into leadership at this point in the cycle. As we mentioned in Tuesday’s blog, capital expenditures (capex) need to rebound as the cycle matures to help sustain the expansion. Unfortunately, trade uncertainty has increasingly weighed on corporate sentiment, so a resurgence in capex may not be possible without a U.S.-China trade resolution.

IMPORTANT DISCLOSURES

Please see the Midyear Outlook 2019: FUNDAMENTAL: How to Focus on What Really Matters in the Markets for additional description and disclosure.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.

Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.

Purchasing Managers Indexes are economic indicators derived from monthly surveys of private sector companies, and are intended to show the economic health of the manufacturing sector. A PMI of more than 50 indicates expansion in the manufacturing sector, a reading below 50 indicates contraction, and a reading of 50 indicates no change. The two principal producers of PMIs are Markit Group, which conducts PMIs for over 30 countries worldwide, and the Institute for Supply Management (ISM), which conducts PMIs for the US.

Market implied rate hike expectations are calculated based on the pricing of various fed funds futures contracts.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

All company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL Financial affiliate, please note LPL Financial makes no representation with respect to such entity.

  • Not Insured by FDIC/NCUA or Any Other Government Agency
  • Not Bank/Credit Union Guaranteed
  • Not Bank/Credit Union Deposits or Obligations
  • May Lose Value

For Public Use | Tracking # 1-887542