It is horrible information. The shopper sentiment outcomes from the University of Michigan Surveys of Consumers have crashed. And the worst half is why.
First, by the numbers
Analysts had anticipated August to be steady-as-she-goes, however the mid-month preliminary outcomes dramatically shook these expectations. Analysts, trusting these early readings, dropped their forecasts accordingly. However, the ultimate outcomes reported Friday, August 30, are even under these revisions.
Now, the killer – what the customers mentioned
From the U-M Surveys of Consumers report, “Tariffs weaken confidence.” (Underlining is mine)
“ANN ARBOR—The Consumer Sentiment Index posted its largest month-to-month decline in August 2019 (-Eight.6 factors) since December 2012 (-9.Eight factors), based on the University of Michigan Surveys of Consumers.
“The latest decline is because of damaging references to tariffs, which have been spontaneously talked about by one-in-three customers, he mentioned. … Trump’s tariff insurance policies have been topic to repeated reversals amid threats of upper future tariffs.
“Such techniques could have some benefit in negotiations with China however act to extend uncertainty and diminish shopper spending at residence, Curtin mentioned. Unlike the repeated tariff reversals, damaging traits in shopper sentiment can’t be simply reversed.”
That final actuality wants repeating: “Unlike the repeated tariff reversals, negative trends in consumer sentiment cannot be easily reversed.”
“Negative Impact on Spending from Tariffs
“Overall shopping for attitudes towards home equipment, residence electronics and different family durables fell to their lowest degree in 5 years, with internet worth references extra damaging than anytime since June 2008.”
“Despite decrease rates of interest, automobile and residential shopping for attitudes declined on stability within the August survey.”
Note, particularly, that phrase: “Despite lower interest rates…” That is why the Fed can not recharge the economic system or the inventory market. (See my article, “The Federal Reserve Will Not Produce A Bull Market.”)
But, what concerning the constructive U.S. Bureau of Economic Analysis (BEA) report, additionally launched as we speak (Friday, August 30)?
Use that report to know the dramatic change we’re witnessing. The BEA information is for July (See AP article, “Optimistic US consumers boost spending 0.6% in July”). The U-M Consumer Sentiment information is for August.
Why the change so shortly? The tariff tipping level for one. Add to that the drop in July’s private revenue development. From the AP article: “…private incomes rose simply Zero.1%, the smallest achieve in 10 months.” [Actually, +Zero.1% is the nominal quantity. The applicable quantity to make use of is the “real” one, eradicating July’s inflation. That quantity is damaging: -Zero.1%). Below is the graph for this 12 months’s month-to-month development charges. Clearly, July is a priority.]
Moreover, July adopted a heady spending second quarter, which means there was room to tug again in August…
From the AP article: “With commerce fights discouraging enterprise funding and reducing into exports, customers are more and more necessary to the U.S. economic system. Household spending was the principal driver of development within the April-June quarter, when spending elevated by probably the most in 5 years.”
Importantly, that July revenue shrinkage isn’t an aberration, however is a pure fallout from the months-long slowing in manufacturing development and hours labored (see my article, “Leading Indicator Deterioration: Manufacturers In Decline”).
The clock runs out…
President Trump’s 19-month, on-again/off-again tariff-tweet techniques appear to have lastly hit the advert nauseam level. The speedy succession of tweets shifting between harsh criticism and promising settlement, punitive tariffs and favorable reversals has burnt out optimism and, maybe, even belief. As a consequence, that rhetorical seesaw now’s producing confusion, uncertainty and fear, even amongst customers.
If shopper spending does decline, this economic system clearly will endure because it joins the sagging industrial/manufacturing development. Moreover, Federal Reserve Chair Jerome Powell now immediately hyperlinks slowing financial development considerations to the Trump tariff injury. This setting is simply the factor for spending cutbacks and recession fears.
Remember, the warnings have been sounded…
We shouldn’t be stunned on the end result we are actually seeing. Nineteen months in the past, when President Trump invoked emergency powers (bypassing Congress) to announce his first tariffs, the specialists (economists, Wall Streeters, enterprise leaders, historians and even politicians) warned of the injury that will happen and the inevitable lose-lose commerce conflict that will emerge.
It took time, however the repercussions now are upon us.
The backside line
Today’s (Friday, August 30) Consumer Sentiment Survey remaining August outcomes confirmed the worst: customers, the primary help on this financial interval, are anxious and able to retreat. The massive, unresolved tariff and commerce wars’ antagonistic results, seen within the manufacturing information, now have hit residence with customers. Therefore, the economic system is in jeopardy, and meaning the inventory market, convertible bonds, and decrease rated bonds are harmful locations to take a position.
The greatest technique appears to be like to be money reserves.
Disclosure: Author holds solely money reserves