“The main takeaway for consumers from the first cut in interest rates in a decade was to increase apprehensions about a possible recession”, Richard Curtin, director of the University of Michigan consumer survey, said in a statement Friday, offering up a rather amusing explanation for why consumer sentiment just posted its second-worst print of Donald Trump’s presidency.
The preliminary read on the gauge for August fell to 92.1 from 98.4 in July.
That’s the lowest level since January, and it missed all estimates. Consensus was looking for 97. The low end of the range was 94.4.
“Consumers concluded, following the Fed’s lead, that they may need to adopt a precautionary spending outlook in anticipation of a potential recession”, Curtin went on to muse.
And that, ladies and gentlemen, is a testament to something we said on Thursday evening while documenting the president’s reportedly panicked attitude when it comes to recent market volatility and a modest downshift in the economy. To wit, from “Trump ‘Rattled’ Amid Market Chaos, Is Calling Business Leaders About Economy“:
Broadly speaking, the data continues to paint a picture of a solid US economy. Indeed, if there’s anyone who is stoking a panic, it’s Trump, with his incessant demands for rate cuts. Just Thursday, for instance, retail sales and manufacturing data came in solid, but [Peter] Navarro showed up again on Fox Business to call for rate cuts. “The point of a rate cut is not to stave off recession but to make a strong economy stronger”, Navarro said.
The constant drumbeat of rate cut calls from Trump, Navarro and Larry Kudlow are spooking folks, both on Wall Street and on Main Street. If the Fed “tightened us into a slowdown” in Q4 2018, Trump is “talking us” into another one in Q3 2019.
This could risk becoming a self-fulfilling prophecy. If consumers get scared, they might stop spending at a time when retail sales just logged a fifth consecutive monthly gain and following a second quarter during which personal consumption, the engine of the US economic machine, shouldered most of the burden.
In other words, Trump’s Fed criticism risks turning into something of a tragicomedy if he ends up derailing an economy that, as Jerome Powell has repeatedly reminded the president, is doing fine on its own.
Other details from the consumer sentiment report include a drop in the current economic conditions index to 107.4 from 110.7 last month and a decline in the expectations gauge to 82.3 from 90.5.
Of course, the truly absurd part of this situation is that the White House will not be able to discern their own role. Rather, as the cracks start to show, the administration will simply double and triple down on calls for rate cuts, which have the potential not only to scare consumers away, but also to make it even more difficult for the Fed to live up to the bond market’s lofty expectations for policy.