Solid US Wages Support Consumer Confidence?

Consumer Confidence continued to recover in August at a faster pace than economists had anticipated. 

It closed the gap from June’s decline at 121.5 and improved the positive average.

Expectations are for the CB’s monthly index to edge slightly higher in September. 

However, the markets expect the numbers to uptick only 20 basis points above August’s print of 135.1, at 135.3.

Consumers Remain Confident

In 2019 so far, consumer attitude showed a greater appetite for spending than analysts had expected.

With Q3 nearing its end, September’s release will mark whether this should continue to be the case into the last quarter of a rather problematic year or not.

Considering a 10 basis point divergence when comparing releases that missed versus releases that beat estimations, this month will end up marking Q3 consumer confidence either as a worse or better than expected quarter.

Hence, the quarter factor makes this event special. And this could have a significant effect on the liquidity injected into the markets during the release.

Rise in Wages Could Support Sentiment

US average hourly earnings rose 0.4% month-on-month in August. This is despite the labor market sliding 28K below expectations.

Hourly wages increased by 11 cents, which is higher than the 8 cents expected. It’s also the largest increase since February. In 2019 so far, wages remained somewhat elevated, supporting better GDP figures.

The year-on-year figures trade right at the long-term average of 3.2%. The bad news is that wages grow way faster than inflation does.

Inflation is stuck below the Fed’s target of 2%, at 1.7%. This comes as energy deflation tumbled 4.4% in August. With the Fed lowering rates, inflation should start picking again as consumers will have more to spend, and this should at least support CB in the short to medium term.

ISM Could Show Positive Economic Direction

The ISM Manufacturing index fell to contractionary levels in September. Regardless of a forecast of 51.1, data from monthly replies indicated that the PMI responded badly to the effects of poor employment. The employment component fell 4.3% compared to July.

The ISM report reflected a decline in business confidence and considerable cracks from a large contraction in new export orders. Not only is this a reason to alarm the labor market, but it also triggers an underlying fear of a potential recession.

With trade, rather than the trade wars remaining as the most significant issue, the ISM forecasts hint to stronger demand for new orders. These expectations could reflect a notable increase in business confidence, hence add on to optimistic sentiment.

The question now is: will US consumers take sentiment from the Fed’s cut or is it too early to inherent optimism amid a lingering trade war?