Election rhetoric negative, but consumers stay positive - Trade Only Today

Election rhetoric negative, but consumers stay positive

U.S. consumers, apparently shrugging off the caustic presidential campaign rhetoric as the election grows closer, more and more like what they see in the U.S. economy.
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U.S. consumers, apparently shrugging off the caustic presidential campaign rhetoric as the election grows closer, more and more like what they see in the U.S. economy.

Reports last week from The Conference Board and the University of Michigan showed that the buying public, rather than becoming more anxious about the turbulent contest pitting Democrat Hillary Clinton against Republican Donald Trump — two candidates with widely divergent views — foresees the economy remaining healthy and growing moderately.

Opinions and actions are two different things, but the public’s rising confidence appears to be measured and its expectations seem manageable. The inflation that can develop as an economy heats up remains in check, and that is keeping the Federal Reserve on the sidelines. The Fed did not raise interest rates at its meeting last month, and it is far from certain that the central bank will do so before the year ends.

Consumer spending was flat in August, and inflation, as measured by the Personal Consumption Expenditures Index, rose just 0.1 percent during the month, the Commerce Department said Friday.

MarketWatch said the PCE index, which the Fed relies on as a key measure of inflation, is up just 1 percent for the 12-month period that ended in August. Two percent is the Fed’s inflation target.

Meanwhile, the Conference Board’s September confidence index, at 104.1, was the highest since August of 2007, which was before the Great Recession started.

“Consumers’ assessment of present-day conditions improved, primarily the result of a more positive view of the labor market,” Lynn Franco, director of economic indicators at The Conference Board, said in a statement that accompanied the board’s September report.

“Looking ahead, consumers are more upbeat about the short-term employment outlook, but somewhat neutral about business conditions and income prospects. Overall, consumers continue to rate current conditions favorably and foresee moderate economic expansion in the months ahead.”

The University of Michigan’s Consumer Sentiment Index was modestly higher, at 91.2. Its chief economist, Richard Curtin, attributed the gain to improved confidence among more affluent Americans.

“Confidence edged upward in September due to gains among higher-income households, while the sentiment index among households with incomes under $75,000 has remained at exactly the same level for the third consecutive month,” Curtin said in a statement. “Importantly, the data provide no evidence of an upward trend, as the average level of the sentiment index since the start of 2016 is nearly identical with the September level (91.4 versus 91.2).”

Taken together, the reports were seen as bolstering the view that consumer spending will stay healthy.

“Both suggest that at current levels consumer sentiment remains robust and indicates a resilient U.S. consumer,” Blerina Uruci, an economist at Barclays, told the Wall Street Journal.

“It was a soft month for consumer spending following a strong one, and it’s not anything to get worried about,” Tom Simons, a money-market economist at Jefferies LLC in New York, told Bloomberg. “The consumer is still going to be the driver of growth this quarter, although not as much as the second quarter. Based on slowly accelerating wage growth and recent data on confidence, I’m optimistic about the outlook for consumer spending.”

Two key reports are out this week, although economy watchers will have to wait until Friday to see them. How many more people are working, and how much are consumers buying on credit?

The September jobs report from the Labor Department and the Fed’s report on consumer credit for August — a measure of non-mortgage debt — will tell us. In July, consumer credit rose by a seasonally adjusted $17.7 billion, and what was originally seen as a slowdown in June was revised to show an increase.

A report at investing.com said the consensus forecast for the jobs report is that the government will report a gain of 170,000 after an increase of 151,000 in August. The unemployment rate is expected to remain at 4.9 percent, and average hourly earnings are expected to rise 0.3 percent after increasing 0.1 percent in August.

One economist told Reuters that she expects the jobs report to nudge the Fed in the direction of a rate increase later this year.

"Given the recent weakness in activity-based indicators, all eyes will be on the labor market data rather than inflation metrics. Specifically, the employment income trend will be crucial for the economic outlook and policy action," Nordea economist Amy Yuan Zhuang said. "The employment report for September is expected to support the case for a Fed rate hike before year-end."

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