The Conference Board’s monthly consumer confidence index is due for release today. The forecasts point to a decline in the index. After a surprise rise to 135.7 in July, the index is set to fall to 130.0 in August.
Consumer confidence is a leading index which measures the confidence among consumers. It is a forward-looking indicator that depicts the pulse of US consumers.
Over the past few months, the consumer confidence index has been rather erratic. In March, the index 121.7. Since then, there has been a gradual increase in the index over the months.
The month to month volatility reflects the ground conditions, especially capturing the uncertainty of the trade wars.
Forecasting declines in the index from July’s reading is appropriate for this month. Escalated trade wars between Washington and Beijing dominated the headlines once again. Furthermore, the inverted yield curve panic also got considerable attention from investors.
As a result, consumers could feel a bit uncertain about the economic outlook in the United States. Economic data from the US so far indicates that growth is slowing, fueled by the major narratives in the backdrop.
This is likely to be reflected in the August reading of the consumer index.
The index hit a peak of 137.9 in November last year. But since then, despite the brief declines, it has maintained itself strongly near the highs.
This is evident from the fact that in July, the index jumped back to 135.7.
The reading for July was, of course, the highest in the index this year. Thus, we could expect to see the data pull back.
Slowdown in Manufacturing to Hit Consumer Sentiment
Besides the trade tensions, there has been a significant slowdown in the manufacturing sector.
The recently released flash PMI’s from IHS Markit showed that the US manufacturing sector fell sharply in August. In fact, the index slipped below the 50-level of the index. This indicates a contraction.
It was also the first time that the index contracted since 2009, just after the global financial crisis.
Another measure of manufacturing, the ISM’s manufacturing PMI, has been weak over the past few months. The services sector has remained one of the key sectors that are holding up, but the momentum is also visibly slowing.
Investors are concerned that after the global economy picked up since the crisis over a decade ago, there could be a recession on the horizon.
This was evident from the inverted yield curve, firstly in January and then once again in late July and early August this year. There is no doubt that the global economic cycle is into the late stages of growth.
However, looking to the July report, many businesses reported that the outlook was bright. The current conditions index rose to 170.9 in July from 164.3 in the previous month.
The basis for the optimistic outlook perhaps comes from a quiet period in July. The US and China had, at the time, agreed to a temporary truce on trade. The Fed lowered interest rates by a quarter basis point and the US economy advanced 2.1% on the quarter ending June 2019.
Disappointing Index Could Underline Concerns of Economic Slowdown
However, this narrative has changed since then.
The slowdown is starting to get more and more evident based on the latest incoming data.
Given the fact that the CB consumer confidence index is a leading indicator, the data will be closely watched. With the narrative of the inverted yield, a steeper decline than the anticipated forecast could spell trouble.