Consumer sentiment dipped modestly in November, as optimism about both current and expected economic conditions faltered at the margin.
The University of Michigan Consumer Sentiment index declined by 0.8 points to 97.5 in the final November reading. Economists had expected no change. That marked the third consecutive monthly decline after peaking in September. Even so, the overall consumer mood is quite positive, and the index remains well above its long-term average.
Underneath that data was a mixed story that seemingly reflected the differing views of respondents on the outcome of the recent mid-term election. Perhaps surprisingly, the differentiating factor wasn’t political affiliation but income level. Optimism among those in the bottom third of the income distribution increased substantially, while those in the top third were more subdued than in recent months.
Broadly, the economy remains on a solid footing in the final weeks of 2018, but some relative weakness in recent data has not been lost on investors. Other data released today was a mixed bag.
Initial jobless claims rose moderately to 224,000, while claims from the prior week were also revised higher. By any standard, layoffs are still exceptionally low, but have been edging higher since bottoming in September.
Today’s report on October durable goods orders was also softer than anticipated, falling 4.4% from the prior month – its steepest single-month decline since July 2017. Still, that decline was nearly solely attributable to a steep decline in aircraft orders, a highly volatile part of the market, which helps to mitigate concern about that headline result.
Existing home sales rose by 1.4% in October, which was modestly better than anticipated. Recent weakness in housing has raised a red flag, and despite the uptick, October sales were down over 5% compared to a year ago. Rising interest rates and home prices are playing a role, as are the caps on federal income tax deductions for mortgage interest and property taxes.
The bottom line is that the economy remains on a positive path, but there are some signs of weakening. Growth likely peaked earlier this year, but consumers remain confident and labor market conditions remain constructive.
Even so, headwinds exist, and consumers are taking note.
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