The University of Michigan’s Consumer Sentiment was little changed in early November at 95.7, up fractionally from 95.5 in the preceding month, effectively in line with expectations.
Underlying that positive headline number was a modest decline in consumers’ collective view on the current state of the economy, but one that was coupled with a bit more optimism about the near-term outlook.
Tariffs and the strained trade relationship with China remain squarely on the radar, while talks of impeachment were a virtual non-issue. Despite that, it appears that consumers may be breathing a sigh of relief that recent softness reflects a mid-cycle slowdown and not slippage into recession.
Sentiment has edged higher in recent months after falling sharply in August as economic data faltered. Conversely, improvement in that data over the past few months, the resilient labor market, and a more accommodative stance by the Fed have had a positive impact on the consumer mood.
More recently, perceived progress on trade negotiations with China may help, but the “one step forward, one step back” nature of the story makes actual, tangible progress and not merely rumors thereof increasingly important. That seesaw of news has been apparent even in recent days.
The importance of labor market conditions in supporting a positive tone can’t be underestimated, as a major reason for the resiliently upbeat consumer demeanor. October’s employment report was surprisingly strong, with the economy creating far more new jobs than expected, despite the negative impact of the United Auto Workers strike on GM over the period. The unemployment rate and initial jobless claims remain near half-century lows. Job creation has slowed, but remains quite solid. Job openings still easily outstrip the pool of available workers, and employers are hesitant to layoff workers in an environment of increasing job mobility and opportunity.
The bottom line? All of this bodes well for consumer sentiment and household spending, particularly if inflation remains low and wage growth strengthens.
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